No one likes to pay taxes, but they are a necessary part of life.
By being knowledgeable about the tax system and taking advantage of all available tax breaks, you can minimize your tax liability and keep more of your hard-earned money.
The first step in becoming tax savvy is to understand the different types of taxes that you may have to pay (Which we’ll discuss below).
Workers in the United States are required to pay taxes throughout the year, with many folks getting money taken directly from their paychecks.
The IRS processes tax returns to prevent double payments and collections. The procedure is how the government recovers any over payments made by taxpayers or bills those who underpaid their taxes.
In 2019, the IRS issued $452 billion in tax refunds, which was a record high amount.
So, would you like to get your taxes done?
Who has to submit a tax return
Not everyone has to file a tax return. Whether or not you have to file is determined by your income, filing status, and whether anyone claims you as a dependent.
The following table shows when you must submit a 2022 tax return (these taxes will be due in April 2022).
|Filing Status||Age at the End of 2020||Income at Which You Must File|
|Single||65 or older||$14,050|
|Married filing separately||All ages||$5.00|
|Head of household||Under 65||$18,650|
|Head of household||65 or older||$20,300|
|Married filing jointly||Both spouses under 65||$24,800|
|Married filing jointly||One spouse under 65||$26,100|
|Married filing jointly||Both spouses 65 or older||$27,400|
|Qualifying widow or widower with dependent child||Under 65||$24,800|
|Qualifying widow or widower with dependent child||65 or older||$26,100|
If your income equals or exceeds the listed amount, you’re expected to submit a tax return.
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By the end of this Strategy Session, you will have a clear understanding of the next steps you can take for your business to take advantage of the tax deductions you are missing out on.
There are several limitations when it comes to claiming a dependent. If you’re claimed as a dependent and single, under 65, and not blind, you must submit a tax return if:
- Your earned income exceeds $12,400
- Your unearned income exceeds $1,100
If you’re not sure whether or not you need to submit, the IRS has an Tax Assistant tool that can help you figure it out if you answer a few simple questions.
If you don’t have to file a tax return because you didn’t reach the minimal income requirement, it’s still a good idea to submit one.
For example, you might be eligible for various refundable tax credits, such as the Earned Income Tax Credit.
A tax credit is an amount of money that the federal government gives to individuals and businesses who have paid too much in taxes.
A refundable tax credit may let you receive back more money than you originally paid in taxes.
You must submit a tax return to the IRS for them to send you the funds you are qualified for.
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What forms do you need to complete your tax return?
When it comes to taxes, you’ll get a slew of paperwork in the mail that you may require when preparing your return.
These forms provide important information such as income and deductions that you may be entitled to.
The following are some of the tax forms you should keep an eye out for:
- W-2: The W-4 form is a tax document that states your personal allowances, which are the amounts of money you should be reporting as income.
Employers use this form to determine how much they must pay in taxes and how much income tax is withheld from your earnings. If you worked full or part-time, you will receive this form.
- 1099: It used to report revenue from other sources. This form will be sent to you if you have any type of money coming in as a contractor or freelancer, or if you make money renting real estate, among other factors.
- 1099-INT: This is another 1099 form you’ll get if you earned interest on a savings account or dividends from investments.
There may be additional types that you receive from employers or organizations with which you’ve done business.
As soon as you get it, pile all of this tax paperwork together. You won’t have to submit most of it to the IRS (the forms are sent directly by the businesses who create them), but having it in one location will make completing your tax.
If you plan to claim certain deductions for business expenses, charitable donations, or medical expenses, be sure to keep those receipts, too.
If you’re audited, you’ll need proof to back up the deductions you claimed.
An IRS audit is a check to verify that you correctly reported all of your earnings and that you didn’t claim deductions or credits you weren’t entitled to.
Although the IRS audit probability is low, it’s a good idea to keep your papers on hand just in case the IRS asks for evidence of your deduction eligibility.
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What are tax deductions and tax credits, and how do they work?
It’s critical that you claim all of the deductions and credits you’re qualified for when you submit your tax forms.
Deductions and credits are two different ways to save money at tax time.
A deduction lowers the amount of income that is taxed by the government and affects your income tax rate.
If you subtract a $1,000 deduction from $55,000 in taxable income and claim it, your total taxable income is reduced to $54,000 because the deducted amount was excluded from your taxable income.
The advantage of a deduction is calculated based on your tax rate, because the deductible amount results from not having to pay taxes on it. So, if you were in the 22% tax bracket and had a $1,000 exemption, you would save $220 in taxes.
A credit reduces the amount of taxes you owe on a dollar-for-dollar basis. A $1,000 credit would cut your tax burden by $1,000.
If you had a $2,000 tax bill and received a $1,000 credit, your tax obligation would be reduced to $1,000.
A credit is generally more valuable than a deduction, however both save money. While some credits merely reduce your tax burden to $0, there are others that are fully or partially refundable, allowing you to receive additional money from the IRS beyond what you paid into the system.
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How to Reduce Tax Filing Stress in 2022?
1) Check your account information online.
You may manage your federal tax situation from the comfort of your own home by creating an online account and accessing the most up-to-date information about your tax account.
You can do the following:
- View your economic impact payments.
- Visit the IRS’s Child Tax Credit Update website for information on making early Child Tax Credit payments.
- Examine your most recent tax return and acquire extra records and transcripts.
- If you have a payment plan, you may look up your current payment schedule.
- You’ll also be able to view 5 years of payment history, as well as any pending or scheduled payments.
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2) Gather and organize your tax records
Tax records that are well-organized make preparing a full and accurate tax return more convenient.
It can help you avoid mistakes that result in refund processing delays, as well as assist you in locating overlooked deductions or credits.
Wait to make a claim until you’ve got your tax records, including:
- Forms W-2 from your employer.
- 1099 forms from banks, issuing authorities, and other payers such as unemployment compensation, dividends, distributions from a retirement plan, annuity or pension plan.
- If you worked in the gig economy and earned money through a company, a 1099-K, 1099-MISC, W-2 or other income statement is required.
- If you were paid interest, you’ll receive a Form 1099-INT.
- Documents and records of financial transactions made in the form of virtual money.
- To reconcile advance Premium Tax Credits for Marketplace coverage, you’ll need to use Form 1095-A, Health Insurance Marketplace Statement.
- Reconciliation of your advance Child Tax Credit payments is required.
- You should submit your claim for the Recovery Rebate Credit only if you are eligible. Send a copy of Letter 6475, Your 2021 Economic Impact Payment, to find out whether you qualify for the credit.
If your address changes, notify the IRS as well as the social aecurity administration of a legal name change.
Keep in mind that the vast majority of income is taxable. This includes:
- unemployment income.
- refund interest.
- income from the gig economy.
- virtual currencies.
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3) Check your Individual tax identification number
When an ITIN expires, it must be renewed only if required on a U.S. federal tax return.
If your ITIN isn’t shown on a U.S. federal tax return at least once during the years 2018, 2019, and 2020, your ITIN will expire on December 31, 2021.
According to the IRS, ITINs with middle digits 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, or 88 have expired.
In addition, ITINs with middle digits 90, 91, 92, 94, 95, 96, 97, 98, or 99, IF assigned before 2013, have expired. If you previously submitted a renewal application and it was approved, you do not need to renew again.
4) Did you withheld enough tax?
If you owed taxes or received a large refund last year, you might want to make adjustments to your withholding.
Changing your withholding may let you avoid a tax bill or allow you to save more money every paycheck.
Life events such as getting married, divorcing, having a kid, or taking on a second job can all necessitate changes
Use the Tax Withholding Estimator on the IRS to figure out how much tax you should have withheld from your pay.
This tool can assist you in determining whether you need to change your withholding and submit a new Form W-4 to your employer.
Make sure you pay your estimated taxes. If you have a lot of non-wage income, such as self-employment or investment earnings, taxable social security benefits, and in some cases, pension and annuity payments, you should make quarterly estimated tax payments with the final payment due on January 18, 2022.
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5) Get banked to speed tax refunds with direct deposit
The quickest method for you to receive your tax refund is by submitting your return electronically and requesting direct deposit.
Why wait weeks for a paper check to arrive in the mail? direct deposit allows you to access your money sooner than a traditional check.
The vast majority (98%) of Social Security and Veterans Affairs payments are distributed to millions of accounts using the same electronic transfer system as other federal agencies.
The IRS deposits nearly all tax refunds into millions of accounts, relying on the very same electronic transfer mechanism that is utilized by other government departments to deposit over 98% of their revenue.
A deposit into your bank account also eliminates the risk of a refund check being lost or stolen or returned to the IRS as undeliverables.
It also saves money for taxpayers. Paper refunds cost more than $1 each, but direct deposits cost less than 50 cents per deposit.
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Tools to help you file your taxes efficiently
Starting in January 2022, any citizen or permanent resident of the US can file electronically for free on the IRS.
Tax preparation tool applications from well-known brands are included in the IRS Free File program, which is only accessible through IRS and allows eligible taxpayers to use them at no cost.
If you’re confident in doing your own taxes, Free File Fillable Forms can be used to submit tax returns by mail or online regardless of how much money you make.
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What Should You do if you are Overwhelmed? (Which is not your fault)
As your company grows larger, the issues you face become increasingly complicated.
When you reach this stage, you must hand over control to the specialists so they can assist you in growing your online business while keeping your focus in your business growth only.
We here at Free cash flow, helping online businesses (like your business) to boost their revenue and doing what other firms miss.
I know you’re anxious about not receiving as much as you had hoped, but believe me when I tell you that we exceed your expectations.
Is it possible for me to do my own taxes?
It is possible to save money on tax preparation by doing your own taxes. You may file manually, online, or through one of the top tax filing software programs such as Turbo Tax or free tax prepration tool from the IRS.
What are the essentials of completing your taxes?
– Tax forms.
– Personal information and family details.
– Income documentation is necessary.
– Documents detailing your expenses.
– A tax professorial.
What if I don’t file my taxes?
Penalties must be paid on time or else you will face a 5 percent penalty each month on any outstanding taxes, which maxes out at 25%.
Here’s how it works: First month: 5% of tax debt. Second month: 5% of tax debt plus a $210 penalty (or 100% of your tax liability, whichever is lower).
What are the chances of getting audited?
The chances of getting audited vary depending on your income, deductions and credits. Generally, the higher your income, the greater your chances of being audited.
What should I do if I get audited?
If you are audited, you should contact an accountant or tax attorney immediately for assistance. You may need to provide additional information to the IRS, and you could end up owing additional taxes, interest and penalties.
You should also keep detailed records of all income and expenses in case you are audited.
Can I still file my taxes if I don’t have all the information?
If you do not have all the information, you can estimate your tax liability. However, it is important to make sure your estimates are as accurate as possible.
If you have any questions, please don’t hesitate to contact us at any time. We are here to help you with all your tax needs.