…plus tips on what you can do to avoid those pitfalls
What You Should Know About Tax Filing
Filing for tax is every citizen’s duty. Anyone who is a US citizen or married to a US citizen, has personal income (wages, salary, tips, social security, properties, payments, etc.), a citizen whose income is from foreign source (even if no longer living in the USA), income is or has been taxed by a foreign country, or unemployed but is married to someone who is earning, all have tax filing obligations.
You can get free tax forms from post offices, banks, etc. and do it yourself, or file through the Internal Revenue Service (IRS) website, or have a professional do it for you. That said, here are some things you need to know about filing your tax return.
Contrary to popular belief, not everyone is required tax, especially if your income from worldwide sources is below the standard the IRS have set.
- For example, if you’re single and earning below $10,150 or 65 and older and earning below $11,700, there’s no need to file for tax.
But things are different when you are dependent on someone else’s return or self-employed.
- For example, if you are self-employed and you’re earning $400 or more, you still need to file for tax return even if your income is below the set standard of income for your filing status.
Another example would be if you are considered as a dependent.
- For dependents who are single, not handicapped (e.g. blind), and is under 65 years old, he/she must file tax return if your income is $5,950 (earned) or $950 (unearned).
On the other hand, if you are dependent who is blind and under 65 years old, you will have to file for tax if your income is $7,400 (earned) or $2,400 (unearned), while $3,850 (earned) or $8,850 (unearned) if you are a dependent who is blind and above 65 years old.
But even if you don’t have to file for tax return, it is advised that you do because you can get a refund from any federal income tax withheld. You should also file for earned income credit, additional child tax credit, American opportunity credit, credit for federal tax on fuels, or premium tax credit (if you are eligible of any).
Now that you know you are eligible, time to be informed of the filing dates. There are (2) deadlines, depending on the date you file your taxes. If you file your tax on a calendar basis, the deadline of filing will be April 15 of the following year. Now if you are filing on a fiscal year basis, the deadline will fall 3 months and 15 days after the end of your fiscal year. However, if your deadline happens to fall on a weekend or holiday, it will be extended until the next business day. If you had your tax return delivered, the date postmarked by the delivery service will be the one followed. So if the tax return is dated on or before the due date, your return will be considered as have been filed on or before that date. You can either pay online through direct transfer from your bank account. You can also do foreign wire transfers if you have a US bank account. Otherwise, you can ask your bank if they can do wire transfers.
If you fail to file your tax return on time, don’t fret, there are extensions — but that doesn’t impede the penalties and interests you’ll incur.
- If you are serving the US Armed Forces and you’re in a combat zone, you can file your taxes at a later date.
- For others, you can get a (6) month extension if you file Form 4868 before your deadline is up.
- Another extension can be granted to those living or working outside the US and Puerto Rico or serving the military or naval outside the US and Puerto Rico, but only for (2) months.
- If in case you still weren’t able to file even after being given a (2) month extension, you can be given another (4) month extension if you file Form 4868 before the set date of filing for extension.
- But all these extensions doesn’t extend your due date to pay your tax — and if you do not pay on your due date, you will incur interests and penalties.
Points to Remember
Let’s now go to some of the points you need to remember.
- Your tax return will be audited. For your credits not to be deducted and get what you deserve, you should know how to throw light on your claims.
- People believe that more withholding tax is actually better since you’re getting significant amount of refunds. But it’s actually better if less is taken out of your paycheck for withholding tax to get more money for your own.
- Tax refund usually takes (2) months to get when you filed your tax manually, and less than a month when you filed online.
- Never neglect IRS notices regarding your inability to pay your tax bill because you’re basically throwing gas into a possible fire; tax evasion. By disregarding these notices, your penalties will continuously increase. Instead, talk it out with IRS because your failure to pay your tax liability can be negotiated. The IRS will be the one to determine the amount you have to pay off. In this way, you won’t earn any penalties
- As long as you don’t have a green card, you are not considered a US citizen. But for tax purposes, as long as you’re in the US territory, you are considered a citizen. Hence, you still have to pay tax even if you’re not a US citizen per se.
Top 10 Tax Filing Errors that Cause Serious Troubles
#1 Wrong Information
There are instances where you mess up with your personal information, especially your name and Social Security number. Sometime, your personal information and your dependent/s doesn’t match the information in the Social Security Administration’s record, which can actually impede the filing process. Always make sure that when filling out the form, you’re selecting the right options and encoding the right data.
#2 Miscalculations and Computation Errors
We can all agree that calculating can be the toughest, and when you do misinterpretation of figures, it can dwindle your tax refund or worse, you can be indebted more than you expected. Sometimes, errors are done in credits, special deductions, or tax-return entries are being put as taxable income, withholding tax, and estimated tax payments. Asking for help from a professional, or using online tax calculation can save you from being wrongly credited. But online tax softwares aren’t 100% credible, so you still have to check it on your own to be sure. You should be able to do the corrections yourself than let IRS do it for you — and give them the chance to change your taxes.
#3 Unreported Earnings
The IRS know every penny you are earning. So if in your tax return you didn’t include all your earning, and the IRS discovers such oversight, aside from paying the taxes you owe them, you also have to pay the penalties and interests you incurred from your unrecorded income.
#4 Wrong Status
Tax deductions are determined by your status, and if you selected the wrong one, you will get the wrong deduction, and possible lesser refund. For example, when you are married, make sure that you check either you are filing separately or filing jointly. The two have different tax deduction. Another instance would be choosing between being head of the household or single. The former deducts larger than the latter. But if you choose single for the purpose of lesser tax deduction, be sure that you fit the status, because the IRS have every resource to certify the information you present.
#5 No Signature
According to IRS spokesman for Georgia, Mark Green, people tends to forget to sign their returns. It is vital to sign the forms, especially something as important as tax returns, or it won’t be considered valid. You wouldn’t want your efforts to be put to waste.
#6 Failure to attach additional forms
Some taxpayers are filing out other forms aside from the tax form itself. And when submitting your tax form, all relevant forms and documents must be submitted along with it, and must be in order. The IRS are pretty stringent when it comes to additional documents as it serves as proof for all your tax return and refund claims.
#7 Missing the deadline
This is has been proven inevitable every year. And is actually apparent as millions of taxpayers file for extensions every year. There’s nothing wrong with filing for extension, but such extension doesn’t extend your payment deadline. So the longer you don’t pay, the higher interest and penalties you will incur.
#8 Direct Deposit
Refunds can actually be deposited to the taxpayer’s account. But when filling up a form, and having to write all those numbers can be confusing, which can lead to incorrect data. So when you’re filling out your form, be sure that you putting the correct account information, especially when you want your refund to be deposited to multiple accounts; or you might just lose your refund altogether or to someone else.
#9 Unreimbursed business expense
Claiming for reimbursements can be hard without proof, so always keep your receipt of unreimbursed business expense. Having a copy of your company’s reimbursement policy would be helpful especially when the IRS audits your tax return and asks questions about your claim. If you can’t backup your claim, then you get no refund.
#10 Charitable Contributions
Any charity contributions can have tax deductions, so it is best if you include it in your tax return. There’s actually a standard of filing for donation tax so that you won’t get lost. Also, you must take into consideration the new policy that donations must be in good condition or any form of deduction will not be granted. And the claim you can make out of your charitable contribution must be the fair market value of it and not the value you paid for the item/s.
How To File Your Tax Without A Sweat?
#1 Gather all necessary documents
Make sure you have everything you’ll need for tax filing;
- Personal information of you, your spouse (if married), and dependent/s, Social Security number/s, and bank account/s information for the form and if you want your refund to be deposited to you.
- Tax bills
- Documents that will help identify your income, expenses, properties and assets (W2 and 1099 forms, K-1 form, etc.)
- Documents related to any tax deductions
- Bank and investment statements.
- Business information (if you own a business or a freelancer)
This way, it’ll be easier for you to fill out your form and save time when you’re audited. And piece of advice, create a storage with categories so all your documents are organized or have them stored in your computer by scanning all your documents.
#2 Review Previous Tax Filing
Errors and mistakes in filing your tax usually occurs on your first time, so it is best if you keep a copy of your tax return for you to have a reference on how it’s supposed to be done, and what areas in your previous return you have overlooked that needs to be considered and changed come next filing season.
#3 Be 100% sure of your claims
As mentioned earlier, you will be audited by the IRS, and each claim must have a credible proof or you wouldn’t get the refund you’re asking for. Only include claims that you have legitimate documentation to avoid any inconvenience with IRS.
#4 Simplify your tax
Check your benefits and gains that are subject to tax and see if you can eliminate them, especially Social Security benefits and capital gains. Combining tax incentives for education, household, and retirement can also be done that will save you a lot of time and money. You just have to be aware of the IRS processes to be able to do it the right way because some of the aforementioned can be tricky when calculated.
#5 Secure your information
Hacking is now becoming rampant, and anyone of us can be a victim and can be deemed vulnerable from any attacks. That said, always be mindful when sharing your information. When filing for tax, be sure that your tax preparer is legitimate, or don’t store any of your information in public computers or share them over Wi-Fi. Hackers have every way to access information and use them for exploitation purposes.
#6 Choose the best accountant
Be sure you’re leaving your tax return filing to proper hands. Evaluate your tax preparer and see his/her qualifications and credentials. Knowing if your tax preparer is aware of the tax law and its revisions is also vital. Moreover, review his previous works to see his/her history of tax filing. You wouldn’t want to be his/her next victim, would you?
#7 Direct Deposit
You will get your refund depending on the way you filed your tax return. If you filed it manually, you’ll have to wait for (2) months to get it, but less than a month if you filed online. Not only will you get your refund at a much earlier time, but it will be relatively safer and convenient for you.
#8 File Early
You can actually save money if your file early. Information you’ll be needing like W2 and 1099 forms are available as early as January 31, so start as soon as they’re available. Also, the earlier you file, the sooner you’ll get your refund. Finally, there are companies and tax preparer offers deals for those who will file early since it will lessen their work towards the deadline.
#9 Be updated
Tax laws and filing instruction can change every year. So it is best that you keep yourself updated if possible to avoid committing any error. Even if you have a tax preparer, it is still advised that you know the tax laws yourself, just in case your tax preparer have overlooked certain areas, you can fix it yourself.
#10 Pay your estimated tax
Withholding tax is for the purpose of paying the government what you owe and is usually deducted from your salary. Now, if you don’t pay your tax through this way, you have to pay the estimated tax plus additional tax liabilities. And if you fail to do quarterly payments, you can be penalized for underpayment.
Here are the Top 5 Convenient Options to File Your Taxes Online
The Internal Service Revenue Service should be the first website you’ll visit if you want you are filing your tax. Aside from the availability of all pertinent forms you’ll need, you can also access tax laws, tips for filing, has accurate calculators, and helps you if you have any concern regarding your finances or legal obligations. It is considered the cheapest and offers free services, through the IRS Free File program, but only if you’re making $58,000 annually. Otherwise, there’s a bill you have to pay but relatively cheaper than other tax filing softwares. Moreover, it recommends a diverse list of tax softwares depending on your income.
TurboTax tops every tax filing software out in the market. The free version contains most of the essential forms such as W2 form, 1099 form, and 1040EZ to name a few, and comes with guidance and direction so you won’t get lost along the way. The paid version differs from each other when it comes to the process as it includes a more detailed instruction, and handles convoluted deductions (which can be really tough to compute). Regardless if you chose the free version or paid, TurboTax offers a prime interface, guarantees fast refund, and has a live chat for your questions. It also features a user community where tax experts answers all tax-related queries. You can expect your refund within (7) days if you filed through TurboTax and opted for direct deposit. Refund bonus is given if you purchase a gift card from Amazon.com, depending on which service you used. Price of the paid versions are listed below:
- Deluxe for $55
- Premiere for $80
- Home & Business for $105
#3 H&R Block
Created by one of the reputable tax filing firms in the US, H&R Block-Home Free Edition software provides a wide array of tax forms, beyond the basic 1040 form. Aside from that, IRS forms considered uncommon can also be filed using H&R. Paid options include data import support, and guidance on deductions and home mortgage interest, depending on which option you choose. It also offers tax advice, and in-person audit support for free. There’s an additional $40 for state returns. If you want your tax return prepared, reviewed, and filed by one of its tax preparers, just add $100 more dollars.. Just like TurboTax, H&R Block also offers refund bonus if you purchase a gift card from BestBuy or Target, also depending on which option you chose. Price of the paid versions are listed below:
- Basic for $35
- Deluxe for $50 for investors and homeowners
- Premium for $80 for self-employed or rental property owners.
#4 E-Filling Plus
E-Filling plus is a website that helps you file your tax returns directly to the IRS and SSA. It offers to process, print, mail, and file your forms, including 1098 forms, 1099 forms, and W2 forms. No need to fill out forms or install a software — just give them your data and they’ll do the work for you. E-filing plus alerts you after each process; when you check-out and your transaction is complete, when your tax forms have been postmarked and mailed, and when IRS or SSA have received your tax filings. Tax forms will be stored in their system in print-ready PDF version up to (4) years. Unlike the other tax filing softwares, e-filling plus’ price range are relatively cheaper:
- $1.25 – $3.95, depending on the number of forms you ordered.
- They have lower rates for e-filing without delivery of a copy of the form to the recipient.
TaxAct has always been known to have great deals as its offers basically costs next to nothing. Its Ultimate Bundle includes e-filing and access to tax data from previous years and donation assistance. But if you’re on a tighter budget, you can go with their Deluxe Federal. TaxAct supports all IRS forms and schedules, allows you to itemize deductions, log capital gains and losses, handles tax issues regarding real estate and report self-employment income. It also allows you to skip certain parts of filing then come back to it later. Although its interface isn’t as integrated compared to other e-filing sites, it has more than adequate amount of assistance, both in text and video, focusing on common tax topics and issues, including penalties. TaxAct Answer Center (assistance via phone) is also available, but only if you opted for the Ultimate Bundle. Definitely ideal for people on a tight budget. Price of the paid versions are listed below:
- Deluxe Federal Bundle for $13
- Ultimate Bundle for $22
Why eFiling is a Good Option?
Filing your tax online has myriad of benefits that transcends manual tax filing.
- Convenience. Tax can be filed anytime, anywhere, as long as you have a computer and internet connection. Gone are the days that you have to worry about the time it will take you to file your tax to the IRS office or set an appointment with your accountant to help you with your taxes. Additionally, these software will choose the right form/s for you and will actually fill it up for you.
- Low-cost. Yes there are software that you have to pay for, but most of them offer free services. And besides, the price is definitely lower than when filing manually.
- Faster. It cuts the process time than when you file it manually — and the faster your tax return is processed, the sooner you’ll get your refund.
- Informed. You are notified in an instant when the IRS have received your tax return, as well as information about your refund. P
- Precise. It’s significantly easier and more accurate since you just have to input your data and figures, and the system or software will do the work for you.
- Secure. It has also been proven safer since there have been instance that tax returns filed manually tends to get lost, which can be critical as imperative information is in there.
- Helpful. E-filing software have the capability to check errors in your return and edit them for you. Likewise, it ensures that you don’t miss any deductions and credits. No need to worry about oversights.