I couldn’t process your entry.

Please reload and retry in a moment.

Check your inbox!

Reset your password with the link we just sent to your email.

Hub Culture logo

Things you must know about tax preparation

< Previous | Main | Next >

31st Oct 2019

Article Image
As per statistics by the Federal government, close to 60% of people use the help of tax preparers to file their returns. Whether you prefer to prepare and file tax returns on your own or hire a CPA to do it for you, there are several crucial points you need to be aware of, to ensure you remain on top of this game.

Itemization is not a mandate

You may have found that itemization is the key to taking advantage of most deductions during tax preparation. But even if you do not itemize, you still stand to benefit from adjustments to income that you don’t have to itemize to claim. For instance, your student loan interest deduction and other such deductions can be found at the bottom of your form 1040.

Tax breaks and credits are for everyone

Depending on your income and circumstances, there may be instances where you may not have to file for a federal income tax return. Even in this case, you may be able to turn tax breaks and credits in your favor. Tax credits provide dollar for dollar return on your due tax and can be more helpful to you than tax deductions which only decrease your overall taxable income. Moreover, with the American Opportunity Credit (AOC), you may stand to get money back with credits even if you don’t pay or owe any tax. For instance, being in school or having children may make you eligible for a refund even when you don’t owe any tax. An experienced tax preparer can help evaluate the exact benefits you are entitled to.

Freelancers need to make projected payments

In case you’re employed by an organization, your employer will hold back taxes from your paycheck and submit it to the IRS or the Internal Revenue Service for you, every time you get paid. This means, based on your financial situation, you may owe, get a refund, or break even with respect to your tax. In case you’re a freelancer, you are expected to make estimated payments by working out the sum yourself. In this scenario, tax preparation can get trickier.

It is wise to pay on time, no matter what your situation

There is a penalty for not paying your taxes by the due date and this sum can quickly add up with interest and set you back. If you are unable to pay your taxes for some reason, you have several options such as paying by credit card or opting for a payment plan with the IRS. You can easily avoid the penalties that apply for failure to file a return or pay taxes. Also, failure to pay by your due date can result in the IRS collecting taxes at any time after that, giving you no time for tax preparation.

Tax filing extension doesn’t mean extension to pay

While you can request for an extension to file your tax returns if you are not ready by the due date, it doesn’t mean that you will be granted with extension of time to make the actual payment. Owing money at tax payment time will attract interest and penalty so it is always wise to start your tax preparation ahead of time to sort your finances and minimize losses.

It is possible to make the most of the whole financial year

You might have found that year end is usually the only time to take advantage of most tax breaks, but a really good exception to this norm exists, which is, adding money to your IRA account. If you act by the due date, you can contribute to your IRA in your filing year and make it work for the previous year as well. As this tax deduction can be claimed above the line, you don’t need to itemize it. As long as you provide all the details to your financial advisor, you can leverage this process to your advantage.

There are finer nuances to tax preparation

While it is possible to prepare and file your own taxes, there are several areas where a qualified CPA can identify details you may have missed and improve the outcome. Planning ahead is highly advisable considering how much it can help minimize your tax liability in the following year. Even though this means spending a bit more time with an accountant, the results are generally worth it.