Navigating the vast and confusing field of filing and paying your taxes can pose a tough challenge to both beginners and the experienced. With recent changes in the tax laws, it is not uncommon for people to forget something while filing their taxes. This article covers the ten most important things you should keep in mind when you are looking to deal with this year’s taxes. Whether you are an employee, a homeowner, or a student, the following is a list of all the things you should know about taxes.
E-Filing over paper filing.
If you are looking to be environmentally conscious as well as save some time and money, the e-filing of taxes is the way to go. With forms at the ready and faster refunds, filing your taxes has become both quicker and easier with this method. While there are a few instances that require paper filing, most situations do not call for such a step. With a little research, you can handle most, if not all, of your tax filing electronically.
Understanding your adjusted gross income
The adjusted gross income or AGI is the amount determined based on both your salary as well as certain expenditure such as educational expenses. Your AGI controls the tax rates, your eligibility to certain deductions, and credit. After removing the considered expenses from your reported income, you reach the taxable income. This taxable income is the actual amount considered for your taxes.
Look for all qualifying exemptions.
Tax exemptions exist for a large number of commonly occurring conditions. For instance, even if you are married or have children, you are eligible for some deductions to your taxable income. You can also check if you are eligible for the IRS debt relief as well. If you apply for these exemptions, your taxable amount reduces and you save more money in the long run.
Refunds only last for a period of three years.
Do not keep the collection of your refunds on hold indefinitely. The validity of refunds is up to a maximum period of three years after which you forfeit the amount. For this reason, never procrastinate on filing your taxes.
Itemize your deductions
Make a list of all the deductions you are currently eligible for. Through such a list, you could essentially save yourself thousands of dollars worth of taxes. Medical exemptions and mortgages payments all qualify under deduction criteria. If you find that you do not fall under most exemption criteria, then you can forego this step and allow the standard deduction to occur. Due to reforms, the standard deductions rates have doubled and could in itself save you some money.
Do not ignore your due dates
Ignoring due dates because you are either preoccupied or can not afford to pay your taxes can rake up its own extra costs in the form of penalties and fines. As an employer or as an employee, due dates are essential. An employer has a due date by which to provide their employees with required forms. Similarly, as an employee, there is a due date by which you must fill up the forms and file them. If you cannot file your tax returns by the due date, you can apply for an extension.
You can extend the time to file as well as time to pay separately.
As mentioned above, if you are unable to file your tax returns on time, you can apply for an automatic extension. To do so, you will have to fill the federal form 4868 (available as a pdf). There is no extra cost attached to applying for an extension. If you think you are unable to pay at the time required, you could also attach a payment with your extension request to avoid penalties.
Avoid rapid refunds
If a consultant offers you a rapid refund, it is inadvisable to take it. These schemes act as loans and can cause more expenses to you in the long run. These loans come attached with a predatory interest rate that could eat up a large portion of your returns.
The consequences of ignoring the tax process are not pretty
Even if you are unable to pay up immediately, never ignore filing your taxes on time. The IRS comes down pretty hard on tax defaulters. They could take drastic measures from cutting off your refunds to taking away your passport. So in any scenario, do not ignore the IRS and consult with an accountant if you find yourself in a bind.
Look for an affordable tax preparer if you find yourself too busy to do your taxes.
Finally, make sure to do your taxes on time regardless of your work schedule. If it is too intense, you can always look for an affordable consultant to help you with the process. A tax professional like Sam Dordulian can help you with not only filing taxes but also find all the exemptions and deductions you qualify for.
There are two main points to take away from this article. Stick to your due dates for submitting your forms as well as paying your taxes and be aware of all the exemption criteria you fit into, and you are good to go.