You might think that you don't make enough money to worry about taxes, but even if you only earn a few thousand dollars a year, you're still required to file a tax return. And the clock is ticking. April 18 is around the corner, and you don't want to turn into a pumpkin at midnight.
So, if you want to keep your magic, use these tax preparation tips to make doing your taxes a breeze, avoid penalties, and maximize your return.
Take advantage of deductions and credits
When tax preparation is done right, you can save a lot of money on all the deductions and credits you are eligible for. This includes state and federal taxes, so it's worth researching to ensure you're getting the most out of your tax return.
Some standard deductions and credits include:
Small business tax deductions – If you're self-employed or own a small business, you may be eligible for a number of deductions. These include deductions for business expenses such as office supplies, travel, and marketing.
Home office deduction – If you use a portion of your home for business purposes, you may be able to deduct a part of your rent or mortgage, as well as utilities and other expenses. This is a great way to save money if you work from home.
The Earned Income Tax Credit (EITC) – This credit is available to taxpayers who earn less than a certain amount. The EITC can help reduce the amount of taxes you owe and may even give you a refund. On the other hand, if you earn more than 70 000 dollars a year, you can file a tax return for your business as an S-Corp, which has many benefits.
Also, you can deduct contributions to your favorite charities from tax returns. That means if you gave $200 in donations, 50% of that amount would be deductible from one's taxable income!
If you are an employee, then you probably have some experience with a W-4 form, otherwise known as an Employee's Withholding Certificate. This tells employers how much they should withhold from your paycheck for tax purposes. This number can vary a lot, but a withholding calculator or other similar tools can give you a better idea of how each type of withholding affects your take-home pay and overall tax return.
Many other deductions and credits are available, so research is essential to see what you may be eligible for. In addition, you can use IRS resources like the Taxpayer Advocate Service or the Free File program to help you prepare your taxes and maximize your deductions. But you must make less than $66,000 yearly for an IRS-free file.
You can also save money on Health Savings Account (HSA). The 2021 contribution limit for an individual with family coverage is $7,050. So if you have an HSA and contribute the total amount, that's $7,050 less you'll have to pay taxes.
Also, during tax preparation add your unemployment compensation, social security benefits, and any other type of government benefits you receive to your taxable income. If you do not specify in your tax return that you are accepting these benefits, you may end up paying taxes on them.
However, sometimes the wisest decision is to delegate one business to a more experienced partner. So there is no shame in asking tax preparers for help since they are accountants specializing in tax returns and laws and can help you predict all possible deductions and credits available to save money.
Track your expenses
You probably hear that saying economists use ‘Follow the money path,' and the same is true when it comes to your taxes. Carefully tracking your expenses throughout the year can save you much money at tax time. This is especially true if you have a lot of business-related expenses.
If you're self-employed, keep track of all your business-related expenses, such as office supplies, mileage, and client entertainment. These expenses can add up quickly and can be deducted from your taxes.
Also, if you itemize your deductions, keep track of all your charitable donations and medical expenses. These are two areas where people often forget to deduct the costs, but they can really add up and help reduce your taxable income.
If you don't track your expenses throughout the year, it'll be much harder to come up with them when it's time to file your taxes.
You can track your expenses using a simple spreadsheet or one of the many tax prep software programs available. Or you can hire a tax preparation expert who is continuously updated with the latest changes in tax laws, credits, and deductions and can help you get the most out of your tax return. If you don't track your expenses throughout the year, it'll be much harder to come up with them when it's time to file your taxes. You can track your expenses using a simple spreadsheet or one of the many tax prep software programs available. For business owners, knowing about resources like an EIN search tool can also be beneficial for verifying business legitimacy and for various tax-related purposes.
Don't let any letter slip
When it comes to tax preparation, even the slightest mistake can lead to big problems. That's why taking a close look at your return before filing is essential. Online tax preparation software can help you catch significant mistakes, but they might not pick up on typos. So, here are a few questions to ask yourself to make sure your return is in tip-top shape:
Did you spell your name correctly? This may seem like a no-brainer, but it's essential to check. A misspelled word can cause problems, from delays in processing your return to inaccuracies in your tax records.
Is your Social Security number correct? Again, this might seem obvious, but it's worth double-checking. An incorrect Social Security number can cause delays and errors in processing your return.
Did you correctly enter your employer's EIN (employer identification number) on your 1099 or W2 on your return? This is another crucial information that tax preparers need to process your return accurately. An incorrect EIN can lead to delays and errors.
As you can see, tax preparation can be tedious, but making even minor errors on your return can cause significant problems. By taking the time to double-check your work, you can help ensure that your tax return is processed smoothly and without any hiccups.
Watch the clock
When it comes to tax preparation the unavoidable tip is to file your taxes on time to avoid any late fees. The IRS typically imposes a penalty for taxpayers who file their taxes late. By filing on time, you can avoid this penalty and ensure you get the most out of your tax return.
The date to file your taxes falls on April 15, but this year it's pushed back to April 18 (midnight) due to the Emancipation Day holiday.
Sometimes it is tricky to cope with everything else in our lives and remember the tax deadline. One way to be sure you never miss it again is by setting a reminder on your phone or your computer calendar. That way, you'll have no excuse for being tardy!
Following these tax preparation tips can help ensure you get the most out of your tax return. So don't wait until the last minute to start preparing your taxes. Instead, get started now and save yourself some money in the process.
