taxes

The Importance Of Paying Your Back Taxes On Time

Angela Manning Finance , , ,
The Importance Of Paying Your Back Taxes On Time

Despite being a vital part of the economy, not many of us like paying taxes. While we may not disagree with what the revenue is eventually spent on, the process of paying the IRS can cause quite a headache. This is made even worse when you consider that not paying on time, or not paying exactly what we owe, can result in a few different consequences that can be quite significant. Because of that, sometimes the process can be enough for us thinking about leaving society so that we don’t have to go through it.

However, this sadly isn’t a reality for the vast majority of us, so we’ll have to ensure that we pay the IRS on time. This may not always happen, though, and some people might find that they’re either paying their taxes late or even filing them late. These penalties can be caused by a variety of different things, such as failure to deposit estimated tax payments, insufficient check funds and much more. When this happens, it can cause quite a considerable amount of stress, especially when we consider how much we might have to pay in penalties and more. That doesn’t have to be the case, however, as the IRS Penalty Forgiveness program might be able to help you.

There can be a significant number of people who may not know what this is; as a result, a considerable amount of people who are eligible for the assistance might go without it. Because of that, they might go through a significant amount of financial burden as a result of the penalties associated with not paying your taxes on time. Then there’s the stress that may also come with figuring out how to pay these back taxes. With that in mind, it’s worth looking at what the IRS Penalty Forgiveness program is and how it might help you going forward.

What Is IRS Penalty Forgiveness?

While there is a certain amount of people who choose not to pay their taxes either on time or at all, this isn’t the case for everyone. Instead, the majority of people who pay or file their taxes late may do so because they weren’t financially able to pay on time. This is something that many people feel they shouldn’t be punished for, and the IRS agrees. This is what the focus of the penalty forgiveness program is. In essence, it’s when the IRS agrees to forgo any penalties or fees for failing to pay your taxes as a result of matters beyond your control.

Types Of Penalty Forgiveness

While many people may assume that there’s one type of penalty forgiveness, they’d be mistaken. Instead, the IRS has noted that there are a few different types. The first of these is a First Time Penalty Abatement, which is what the name suggests. As such, it’s something that can only be gotten if it’s the first time you’ve paid your taxes late. It should be noted that you can only apply for this abatement once you’ve paid your back taxes in full, as the fees and penalties grow for as long as you have an outstanding balance.

Perhaps the most common reason that the IRS has forgiven tax penalties is for reasonable cause. This is when someone is unable to pay their taxes because of unforeseen events that may be outside of their control. However, it should be noted that financial troubles may not be considered here, although the cause of this hardship may be considered. For example, paying off debt may not be considered reasonable cause. Some of the most notable reasons that the IRS has forgiven these penalties are a natural disaster, serious illness or loss of access to documents.

When you’re applying for the Reasonable Cause program, you’ll also need to provide proof of reasonable cause. This will include the likes of factual accounts and documentation of events, as well as how they caused you to miss your tax payments. This shouldn’t be too difficult, though, and the IRS will work with you to inform you as to what kind of documentation you’ll need to provide.

The IRS may also issue a Statutory Exception for your penalties, although this is relatively uncommon. This typically occurs when the IRS provides you with inaccurate information for filing your taxes which results in you underpaying or missing a payment.

Advantages and Disadvantages of Filing Your Own Taxes

Angela Manning Finance , , , ,
Advantages and Disadvantages of Filing Your Own Taxes

Neglecting your personal finances can lead to all types of problems in the future. Therefore, you should stay organized and make sure to keep close track of your finances. Part of keeping your financial life in order includes dealing with filing your income taxes. Failure to do so can result in fines and various other charges. The Internal Revenue Service (IRS) may even decide to contact you by mail, which is usually not good news.

Therefore, you should make sure to plan ahead and prepare to file your taxes on time or even early if possible. However, whether you decide to file your taxes yourself or hire a competent tax professional, such as Western Shamrock Corporation (Local) tax preparation service(s), will depend upon your knowledge of tax laws and accounting and also how much time and energy you are willing to spend. You should carefully examine the pros and cons of filing your own taxes since there are some significant risks and disadvantages in choosing to do so.

Time factor

Time is money, as they say. This is one thing to think about before choosing to file our own taxes. In many instances, depending upon your situation, filing your own taxes can be an extremely time-consuming venture. Taxpayers spent an average of 13 hours, according to the IRS. If you have to file a Form 1040 then that amount of time goes up to 16 hours. However, if you have to file business taxes, the amount you will spend jumps up to 24 hours on average. In more complex cases, the amount of time spent can even be more. Depending upon your situation and how much you value your time it may make sense to hire a tax professional.

You can deduct tax preparation fees

One of the drawbacks of hiring a professional tax preparation service is the fees charged. However, if you itemize your taxes you may be able to deduct the fees charged for a professional tax preparer. If you file Form 1040, you can deduct tax preparation fees under miscellaneous deductions as long as your deductions under this category is 2 percent or less of your adjusted gross income.

Constantly changing tax laws

Another reason to consider hiring a professional tax preparer is the constantly-changing federal tax code. Each year the tax laws are adjusted making it almost impossible for the everyday person to be completely aware of the changes and if they may be applicable to his or her situation. A good tax preparation service should be up-to-date on all of the latest tax laws in order to make sure you are in full compliance with regulations while ensuring you are aware of all of your options. This will allow you to minimize your tax liability and possibly even help you receive a large tax refund.

Save money

Of course, the obvious reason to do your own taxes is to save money on the preparation fees. This may make sense if your taxes are fairly simple and straightforward. If you have a basic understanding of tax law you may be able to get by. With the amount of free information on the Internet, it is definitely possible to teach yourself. However, you will have to be careful to only use accurate sources of information. On the other hand, there are certain circumstances which are too complicated for most untrained people to handle, requiring the help of a competent tax preparation service.

If you own, sold or started a business it may not be a good idea to do your own taxes. Also having various investment gains or losses can make filing more challenging. Capital asset, real estate, and trust fund transactions will require significantly increased time and effort to report. If you receive income in a state or country that is not the same as your residence, certain tax laws may apply in different ways which could require significant tax law knowledge. Additionally, if you are self-employed your tax filings will be significantly more burdensome than the average nine-to-five worker.

How To Do Your Own Taxes

Angela Manning Finance , , ,
How To Do Your Own Taxes

Doing your own taxes is easy with e-filing. Next year, don’t waste money hiring someone else do the math, make sure you keep your pay slips and records of your expenses and familiarize yourself with the process. Here’s how to do your own taxes and save.

Approximately 43% of Americans take care of their taxes themselves.

Tax season can bring headaches to many U.S. taxpayers, especially for those who don’t want the hassle of handling tax filing on their own.

However, it is possible to do your own taxes and achieve the largest refund possible. You don’t have to be numbers-savvy to do so, either.

In this post, we discuss how to do your own taxes to your financial advantage.

1. Gather Documentation

The secret to successful navigation of your tax filing lies in the documentation. You’ll need to collect all relevant paperwork concerning income, employment, and expenses.

If you are a regular employee at an institution, you will likely receive a W-2 tax document from your employer several months before the April filing deadline. This form details your gross and net income (as well as taxes paid) for the prior year.

Independent contractors, business owners, and self-employed individuals will have different documents. These may include 1099-MISC, receipts of cash payments, personal revenue documents, and beyond.

Additionally, the Internal Revenue Service recommends that taxpayers gather documents related to investment, rental property, and unemployment income. If you receive social security benefits or acquired cash through lottery or gambling winnings, these should also end up in your stack of tax papers.

Lastly, collect all paperwork that accounts for relevant expenses. This includes business and work-related expenses and costs associated with childcare, education, loan interest, and health insurance.

For a full tax document checklist, click here.

2. Understand Eligible Deductions

When you do your own taxes, the easiest way to a fat deduction is financial knowledge.

Understand which credits and tax deductions you are eligible for. If you are a college student, for example, you are likely eligible to deduct student loan interest and education costs.

Self-employed individuals can deduct costs for home office and work-related expenses. If you have dependents or are a first-time homebuyer, you may qualify for certain credits.

Check out the IRS’s full list of qualifying deductions before you do your own taxes.

3. Use E-Filing Software

The easiest way to do taxes involves using e-filing software. We recommend programs like TurboTax because they enable taxpayers to file from the comfort of their own homes.

What’s more, e-filing software walks taxpayers through the entire filing process, checking for all viable deductions and minimizing errors. In fact, e-filed taxes have a 0.5% error rate, in comparison to a 20% error rate for paper filed returns.

E-filing enables taxpayers to file full returns electronically. You don’t even have to go to the mailbox or worry about buying printer ink!

Taxpayers who e-file are also likely to receive a faster return right into their checking or savings accounts.

Programs like TurboTax also offer specialized filing services for independent contractors, business owners, and families. They also have a close alliance with Quickbooks, a personal finance management system that can generate invoices, create a paystub, and keep track of expenses.

How to Do Your Own Taxes

Tax season does not have to be daunting. If you’re curious about how to do your own taxes successfully, invest in e-filing software.

When you electronically file your taxes, you can feel confident that you are doing so accurately. This is particularly the case if you have gathered appropriate income and expense documentation and understand your eligible deductions.

At Nonsociety, we believe in your great power to take charge of your own life. Learn about how we operate here!

15 Tips for Winning at Doing Your Own Taxes

Angela Manning Finance , , , ,
15 Tips for Winning at Doing Your Own Taxes

Doing your own taxes can seem overwhelming but it’s a good opportunity to maximise your refund. Here are some top tips for preparing your tax return like a pro.

Did you know that 65% of American taxpayers receive a federal refund?

A federal refund can mean a fat check in the mail once you file your taxes, especially if you file them correctly.

For many taxpayers, refunds can take care of lingering bills or lead to a much-deserved vacation.

A lot of people dread doing their taxes, but preparing your tax return in a smart way can actually mean a larger federal refund than you’ve been expecting.

In this post, we’ll look closely at tips you can keep in mind when doing your own taxes. These strategies can be your secret to making the most of your next tax return!

1. Avoid Paper Tax Returns

A lot of people choose to file their taxes manually.

Paper tax returns can often mean saving money on tax software. But it can also mean more headaches for you, especially if you find tax language to be daunting.

What’s more, it can be incredibly easy to make a mistake on a paper tax return. In fact, paper returns have as much as a 20% error rate in comparison to electronically filed returns!

Errors in your tax return can mean that they are ultimately rejected by the IRS. Errors can also mean a lower total refund and higher taxes paid.

The best way to do taxes yourself often involves e-filing. A lot of companies like TurboTax make filing your taxes yourself easy and affordable. Check out https://www.ultimatetax.com/ to learn more about tax preparation software.

E-filing also means that you will always have electronic copies of your tax returns for consecutive years. This can be helpful if your filing requires numbers from prior tax returns.

2. Gather All Documents Before Filing

Doing your own taxes often means weeding through thick stacks of paper. Before you start puzzling through those documents for filing purposes, get the right ones in order.

The most important documents you need for doing taxes yourself are ones that indicate the past year’s income.

These include W-2s, 1099s, evidence of cash transactions, investment income information, state tax refunds, and any other income you may have received through unemployment, rental properties, or business operations.

Most employers and contractors will send out your tax documents by February so that you can have them in order for filing season.

3. Decide Whether to Itemize Or Not

A standard deduction is what the IRS offers to individuals or families who won’t benefit from itemizing — i.e., writing out–other deductions.

The best way to file taxes may be to simply claim the standard deduction. However, when doing your own taxes, make sure you can totally rule out itemizing before you claim the standard.

How do you know if you need to itemize or not? Itemizing basically means gathering up all of your receipts from the previous year that could earn you a deduction.

These include non-reimbursed business or work expenses, job search expenses, charitable contributions, and even medical bills.

Itemizing does require having a solid grasp of the prior year’s deductible expenses. For this reason, we recommend itemizing if you have proof of these deductions (i.e., paper or digital receipts) and if itemizing can grant you a higher return than a standard deduction.

4. Stay Organized for Next Year

It’s possible to file your own taxes like a boss if you prioritize organization. Having your receipts, proof of income and other essential documents in order can make your life so much easier once tax season rolls around.

If you’ve already filed your taxes for this year, get a headstart on next year’s filing by establishing an organization system.

This may mean investing in finance tracking software, for example, to keep a digital record of your expenses and income.

It may mean creating digital or literal files for storing receipts and tax documents. Whatever the case, make sure you have an easy and effective system in place for keeping all of your documents together for next year’s tax return.

5. Seek Assistance

Doing taxes yourself can be overwhelming, especially if you are new to it. It is possible to seek out assistance when filing your own taxes so that you can maximize your refunds.

A lot of people resort to a personal accountant when it comes to filing taxes themselves. This may be especially smart if you are a business owner. Many accountants do not charge an egregious amount for their filing services.

Others may be able to qualify for free tax filing assistance if finances are an issue. In fact, a hefty portion of standard taxpayers may qualify for free filing assistance.

Visit the IRS’s website to learn more about assistance and filing counseling for low-income or elderly taxpayers.

6. Educate Yourself

Doing your own taxes doesn’t have to feel like signing up for a foreign language class. The best way to maximize your refunds this tax season is to educate yourself.

This may mean a lot of things to different taxpayers. If you are a self-employed individual, for example, your tax filing will likely be a lot different from an employed individual.

The same goes for business owners, those receiving social security, homeowners, and families.

It’s possible to learn about how the tax system works in the U.S. simply by researching online. You can also learn about deductions you may qualify for via the IRS’s website itself.

A lot of e-filing companies such as TurboTax enable users to consult certified accountants while filing taxes. Others have community forums that often answer a lot of taxpayer questions.

7. Understand What “Dependent” Means

If you are doing your own taxes, you may be tempted to instantly gloss over the component that asks about dependents. This is particularly the case if you are a single individual without children.

However, if you do support a friend or family member for various reasons, you could qualify for a tax deduction.

Let’s say that you have enabled a friend to live with you for a year to help her get back on her feet. Or perhaps you’re caring for your aunt who is navigating a difficult illness.

These situations may enable you to deduct a little over $4,000 when filing your taxes.

8. Explore Above-Line Deductions

Above-the-line deductions are adjustments to your income that enable you to pay fewer taxes for the prior year.

The good news about these deductions is the fact that you don’t have to worry about itemizing in order to claim them. Some examples of above-line deductions include expenses for moving or paid self-employment tax.

These deductions are called “above-the-line” because they physically reside above the line on your tax forms where you have to report your gross income.

9. File On Time

One of the biggest secrets to filing your taxes yourself is knowing the filing deadline. Filing deadlines are typically in mid-April in the U.S.

What’s more, make sure you do file your taxes on time. Missing this deadline can mean paying interest on your tax balance. You may even be liable for certain fees if you don’t file for a legal extension and miss the deadline.

10. Seek Out Refundable Tax Credits

Refundable tax credits are exactly what they sound like: a matched reduction in the taxes you owe to the IRS.

An example of a refundable tax credit is the earned income tax credit, one that benefits working individuals with low to middle income. Refundable credits essentially give taxpayers a refund, as they are credits that surpass an individual’s total tax liability.

Other refundable tax credits include the American Opportunity Credit, Premium Assistance Tax Credit, and Additional Child Tax Credit.

11. Consider an IRA

If you set aside money for retirement in the previous tax year, you may be eligible for a deduction.

What’s more, if you contribute significantly to an IRA this coming year, you could claim up to $6500 in deductions, depending on your age. If you are already looking ahead to next tax season, consider contributing to an IRA now for tax and retirement benefits.

12. Deduct Your Home Office

If you are self-employed, you may be eligible for a home office deduction. This is particularly the case if you work from home or rent out an office solely for business purposes.

A home office in this sense is technically a business expense. However, there are some exceptions. Learn more about the home office deduction here before you go about filing your own taxes.

13. Don’t Neglect State Taxes

It’s easy to get caught up in federal tax stipulations alone. But don’t forget about your state obligations when doing your own taxes.

Depending on the state you live in, you may be obligated to a state income tax. Learn more about state taxes here via the IRS’s list of government websites.

Don’t let this aspect of doing your own taxes alarm you. In most cases, taxpayers are eligible for state tax refunds.

14. Keep Your Tax Documents for the Future

Once you start filing your own taxes, it’s important to hold on to every year’s tax documents for future reference. This is important if you choose to re-file taxes for a certain year, in case of an error.

You may also need to refer to past years’ refunds when filing future taxes. Most e-filing companies keep all of your tax return data on file for this reason.

Store income documents electronically as well in case they come in handy down the road.

15. Use Tax Refunds Wisely

Doing your own taxes doesn’t have to be stressful! Often it results in a hefty refund.

When your refunds do arrive, use them wisely. Many people use their refunds for investment purposes, while others set them aside for future tax payments.

We recommend having a plan for your refund before you file, particularly one that fits well within the scope of your financial future.

How to Win At Doing Your Own Taxes

Handling your own taxes this tax season does not have to be difficult. Stay organized, educate yourself, and seek out assistance if need be.

Avoid filing a paper tax return to minimize errors. Explore all applicable deductions and decide whether or not itemizing is right for you. Always file on time to avoid any penalties.

NonSociety is your ultimate resource for navigating all of life’s challenges on your own terms. Learn more about what we do here!