Got Tax Questions? We’ve Got Answers
Everyone has questions about something. Taxes are no exception. In fact, many people have more questions about taxes and personal finance than about anything else!
So what do you need to know about taxes? Well, a few things.
Why Should I File My Taxes Early?
Your grandmother may not have been wrong when she told you to file your taxes early. The longer you wait to file your tax forms, the longer you wait for your tax refund.
Filing your taxes well before the deadline can get you your refund in a timely fashion. It can also give you peace of mind knowing that you won’t have to take care of it later.
The most important reason to file your taxes ahead of the deadline, however, is to save money. The longer you wait to file your taxes, the more likely you are to miss the deadline. If you accidentally miss the deadline, you will be responsible for penalties to the IRS.
Waiting until the last minute can also cause problems. If there is an issue with your tax return, you will have less time to refile before the deadline.
In addition, many tax preparers charge premiums for filing taxes closer to the deadline.
Don’t risk losing time and money over your taxes. File them early.
What’s all this about credits, exemptions, and deductions?
Credits, exemptions, and deductions are very important to understand to maximize your tax return.
Deductions and exemptions are the main sources of tax reductions. Both of these reduce your taxable income. In turn, this lowers your total tax bill.
Exemptions are different from deductions in that they only apply to people in your family. The more family members you have, the more exemptions you will be eligible for on your tax filing. In contrast, deductions depend on a variety of factors such as student loans, investments, and more.
Credits, on the other hand, are simply discounts on your taxes. Instead of reducing your income that can be taxed, credits reduce the tax bill itself.
What Tax Breaks Can I Take Advantage Of?
This is going to depend a lot on your particular situation.
People with a mortgage or dependents automatically get a few big tax breaks. These are two of the biggest tax breaks, but there are plenty more out there.
Anyone contributing to a retirement account is eligible for discounts and tax breaks. If you contribute more money to your retirement account, you’ll pay less in taxes. Many retirement plan contributions are also tax exempt!
On top of that, there are tax breaks for students. Students can receive tax breaks on student loan interest. They can also receive tax cuts for tuition they pay for school.
The Earned Income Tax Credit is another big tax break. This tax break helps people who earn a low amount of income. If you earn less than $20,000 a year, you may be eligible for the Earned Income Tax Credit. This is particularly helpful for part-time workers.
What if I Can’t Pay My Taxes?
We get it. Everyone has financial struggles, and taxes can throw you for a loop. How you choose to handle tax debt is up to you.
If you have a small amount of tax debt, putting the total on a credit card might be a good option. This will give you some more time to pay off the taxes you owe.
Personal loans are another good option for paying off tax debts. Banks and credit unions offer many personal loan options which you can use to pay off your debt.
Another option is to reach out to the IRS directly. Setting up a payment plan with the IRS can help you pay off your tax debt in a timely fashion without high interest rates.
Finally, you can seek tax relief from the internal revenue service. The IRS has systems in place to help citizens who need tax relief.
I Messed Up My Taxes. Now What?
Making a mistake on your tax return is not the end of the world. While it might seem like a huge problem at the moment, it can be easily remedied.
First, let the IRS know as soon as you realize there is a mistake.
Next, double check the calculations on your tax return. Sometimes it is a case of a simple math error.
If the IRS sends you a bill for taxes still owed, double check that it wasn’t already paid. The IRS makes mistakes too! It’s important to check that everything balances.
If after your calculation there is still a mistake, you will need to file an amendment for your return. This is done using Form 1040X.
Don’t panic about filing an amendment. Small errors are not usually cause for IRS tax audits. The sooner you take the right steps to correct your tax return, the less likely you are to be audited.
How Will 2018 Tax Law Changes Affect My 2019 Return?
There are several tax law changes that occurred in 2018 which may affect your tax return. Be mindful of these as you prepare your 2018 tax return.
No More Personal Exemptions
The law used to say that taxpayers could reduce their income by claiming personal exemptions for their spouse, dependents, or themselves.
As of 2019, these personal exemptions will no longer exist. Personal exemptions will come back into play in the 2025 tax year.
Does the IRS target immigrant business owners for audits?
The answer should be no, but for foreigners and green card holders there could be more intense scrutiny. While common in states such as Texas and California where many business owners are immigrants, it can also occur in Michigan where an immigrant owns a gas station.
The legislative calls to expand the authority of the IRS to take on some roles of US Immigration and Customs Enforcement (ICE) have largely gone nowhere. Added penalties for employers who hire undocumented workers, however, remain talking points on Capitol Hill. And an IRS audit that turns up employment verification issues could involve other federal agencies. Underreporting cash transaction is another problem that could lead to a lengthy audit process and hefty penalties.
Standard Deductions Double
Under the previous laws, taxpayers who chose not to itemize their deductions could claim a standard deduction. The standard deduction amount was equal to $6,350 for individuals with a single filing status or 12,700 for married couples.
For 2018 taxes, these deductions have increased. Individuals can claim a standard deduction of $12,000 and married couples can claim $24,000.
What is Form I-9?
An initial issue that any business must consider when adding employees is Form I-9. It is illegal to hire someone who lacks proper U.S. employment authorization. Failing to complete this form and keep it on file, exposes a business to fines. A first-time violation is up to $3,200 per worker. Subsequent violations come with stiffer fines.
Because independent contractors are not employees, Form I-9 is not required when working with independent contractors. Misclassify an employee as a independent contract though and there are significant civil penalties. And it is still unlawful to hire someone unauthorized to work in the country even as an independent contractor.
Owners of the business would generally not need Form I-9. But someone who works for a business must have a substantial ownership interest to be exempt from the I-9 requirement.
Changes to Tax Brackets
Tax brackets have changed as of 2018. In the past, there were seven tax brackets. The tax bracket an individual fell into was determined by their income level.
In 2018 the tax rate for these tax brackets was lowered significantly. The good news is that this will offer you a higher income tax return for 2019.
Being equipped with answers to common tax questions will help you be ready for tax season. Keep these tips in mind as you prepare to file your tax return.