You’d be wrong to limit tax preparation to the time leading up to the end of the fiscal year when payments and returns are due. You would be wise to include tax preparation in your plan to amass riches. Taxes are a source of stress and confusion for many people, but they may be used to your advantage if you take the time to plan. Yet, if you believe that tax planning is solely necessary for those with a high net worth or big salaries, you’d be wrong again. Here are the six most important things to remember when completing your tax return.
1. Tax Credits
Business owners typically regard increasing sales figures and a broadening customer base as major indicators that their company is progressing toward its financial goals. Despite this, a fundamental understanding of the tax code is essential. This understanding should not be limited to the taxes you are personally liable to pay.
Whether an entrepreneur chooses to handle their bookkeeping or collaborates with a tax expert, it is prudent for them to be up to date on the many tax credits and adjustments offered and the procedures involved in using them. Some of these credits include research and development credit, disabled access credit, the Employee Retention Credit, and empowerment zone employment credit, just to mention a few. These vital procedures for claiming significant tax credits are something that every owner of a business should be aware of.
2. Records and Receipts
There was more pain in maintaining tax documents than today. Nowadays, many opt to keep their paperwork in electronic format, clearing up valuable desk space. Several institutions now issue digital copies of tax forms to reduce your tax paper trail further. If you’re looking to save time and cut down on paper, storing your tax records and receipts online or in the cloud may be the way to go. But be sure your cloud storage provider uses encryption on your data to prevent identity theft.
A password is an excellent way to secure your data and prevent unauthorized access. Scan documents and save them in a safe location with a backup if possible. Unless it’s an original deed, title, valuation, or investment document, you can throw away the paper duplicate. Be sure to protect these (digital) records.
3. Filing Status
The choice of filing status is one of the initial steps in completing a federal income tax return. Picking the correct one is vital since it determines your tax bracket if you don’t itemize, the types and amounts of additional tax credits and deductions you can claim, and the standard deduction if you don’t itemize. Some people have no trouble deciding what tax status they should use, while others have a more challenging time making that call.
You can only claim the “single” filing status if you’ve never been married and don’t have any dependents. Choosing the correct filing status affords you specific legal safeguards. Each person on a joint return is equally accountable for its accuracy.
4. An Extension
You have the option to obtain an extension if you are unable to fulfill the tax filing deadline. By sending a form, “Extension to File,” to a taxing agency on or before the deadline, you can ask for a delay. A legitimate tax extension alters your tax return due date. There are numerous ways to ask for an extension; you can do so at no cost by sending a form to the taxing agency via the agency’s free file program.
The period you have to pay your taxes is not extended by an extension, even though it provides you an extra six months to file your tax return. You must still make your payment by the deadline.
5. Free Filing Programs
The Free File Program eligibility requirements include a low income and a relatively simple tax filing situation. The IRS Free File Program is a collaboration between the Internal Revenue Service and private companies that produce tax preparation software. It is available to taxpayers with an adjusted gross income overall income minus specific deductions of less than $73,000. It’s possible you haven’t heard of this program even though it’s been around for a long.
The companies that offer free versions of tax preparation software online typically don’t promote themselves. If you qualify, free tax preparation help is available through the taxing agency’s Volunteer Income Tax Help Program.
6. Online Taxing Account
Setting up an online tax account is recommended to avoid the hassle of calling or writing to the taxing agency. Logging into an account lets you see tax returns and forms filed in previous years, check payment balances, and make payment arrangements. You may adjust your notification settings via the convenient web interface. If you want, the taxation authority can opt to send you notices through email. It also lets you delegate tax-related tasks to a trusted advisor.
To get your new Social Security card, inform the Social Security Administration of your name change as soon as possible.
No individual tax strategy can be created in solitude. As such, you should begin working on it as soon as possible throughout whatever phase of financial planning you undertake, whether that’s annual or long-term. To take a comprehensive view, it’s essential to consider all aspects of your financial situation, including your income and the tax bracket you fall into, the taxes you’re currently paying and those you may owe in the future, any investments you now have or plan to make, and your long-term financial goals.