Wondering why you should enlist the services of a tax preparer?
Hiring a Tax Preparer offers several advantages:
Will a professional get me a greater tax return than doing my taxes on my own?
While there is a cost associated with hiring a tax professional, the potential benefits, including a higher tax return and peace of mind, often outweigh the expense. Ultimately, the decision to hire a professional depends on your individual financial situation and comfort level with navigating tax complexities.
What do I need for Income tax preparation?
You will need the following information:
- Your social security number.
- Your spouse’s social security number.
- Social security numbers for any dependents.
- All W-2 forms from all of your employers from the tax year you’re working on.
- 1099 Forms for completed contract work that earned you more than $600
- Investment income information (interest, dividends, proceeds from stocks or bonds, and income from foreign or other investments).
- Business income information (for any and all businesses you own or have shares in).
- Unemployment income information.
- Rental property income information.
- Social security benefits.
- Miscellaneous income information (like anything you earned jury duty, winnings from lottery or gambling, prizes and awards, and information about anything you might have received from savings accounts for medical bills).
What happens if I owe back taxes?
If you owe back taxes, it’s important to address the situation promptly. Here are some potential consequences and steps you can take:
Accrual of Interest and Penalties: Owing back taxes typically leads to the accrual of interest and penalties. The longer the debt remains unpaid, the more you may owe due to these additional charges.
IRS Notices and Communication: The IRS or relevant tax authority will likely send notices regarding the unpaid taxes. It’s crucial to respond to these notices promptly and communicate with tax authorities to avoid further complications.
Liens and Levies: If the back taxes remain unpaid, the IRS may place a tax lien on your property or initiate a levy, which allows them to seize assets to satisfy the debt. This can affect your credit rating and financial stability.
Wage Garnishment: In certain cases, the IRS may garnish your wages, diverting a portion of your income to cover the unpaid taxes.
Legal Action: Continued non-payment may lead to legal action, including the possibility of a lawsuit to collect the owed taxes.
To address back taxes:
File Outstanding Returns: Ensure that all outstanding tax returns are filed. This is a crucial first step in resolving the issue.
Payment Options: Explore available payment options, such as setting up a payment plan or negotiating a settlement. The IRS may offer flexibility based on your financial situation.
Seek Professional Assistance: Consider seeking the help of a tax professional, such as a tax attorney or CPA, who can guide you through the process, help negotiate with tax authorities, and explore available options.
Installment Agreement: You may be eligible for an installment agreement, allowing you to make monthly payments until the debt is settled.
It’s essential to take proactive steps to address back taxes to prevent further financial consequences. Ignoring the issue can lead to more severe penalties and complications.
Do you have to file your taxes every year?
Yes, in most cases, individuals are required to file their taxes every year. The specific requirements depend on factors such as your income, filing status, and age. Here are some key points:
Income Thresholds: If your income meets certain thresholds, you are generally required to file a federal tax return. These thresholds can vary based on your filing status (single, married filing jointly, head of household, etc.) and age.
Filing Status: Your filing status (e.g., single, married, or head of household) also influences whether you need to file a tax return.
Dependent Status: If you are claimed as a dependent on someone else’s tax return, there are specific rules regarding whether you must file your own return.
Self-Employment: If you are self-employed or have income from freelancing, you typically need to file taxes, even if your income is below the standard filing thresholds.
Other Income Sources: Certain types of income, such as dividends, rental income, and capital gains, may require you to file a tax return.
It’s important to check the current tax laws and consult with a tax professional to determine your specific filing obligations. Failing to file when required can result in penalties and other consequences. Keep in mind that even if you don’t owe taxes, you may still need to file a return to claim certain credits or refunds.
What records should I keep along with my tax returns? How long should I keep them?
It’s important to keep thorough records along with your tax returns for documentation purposes. Here are some key tax records to retain and general guidelines on how long to keep them:
- W-2 and 1099 forms
- Records of additional income, such as freelance or side gig earnings
Retention Period: Keep these records for at least three years.
- Receipts for deductible expenses, including business expenses, medical costs, and charitable contributions
Retention Period: Retain these receipts for at least three years.
- Copies of your filed tax returns, including supporting schedules and forms
Retention Period: Keep copies of your tax returns indefinitely. They can be useful for various purposes, such as applying for loans or addressing questions from tax authorities.
- Records of stock transactions, mutual fund statements, and other investment-related documents
Retention Period: Keep these records for at least three years after selling the investments.
- Documents related to the purchase and sale of real estate, including closing statements and improvement receipts
Retention Period: Retain property records for at least three years after selling the property.
Business and Self-Employment Records:
- Business-related receipts, invoices, and accounting records
Retention Period: Keep these records for at least six years.
- Medical bills and receipts for deductible medical expenses
Retention Period: Retain medical records for at least three years.
- Records related to education expenses, including Form 1098-T
Retention Period: Keep education records for at least three years.
Always check with a tax professional for specific guidance based on your individual situation. Additionally, consider scanning and storing digital copies of important documents for added convenience and accessibility.