Sunday, November 27, 2022

How Taxes Work For Dummies

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How Do You File Your Tax Forms

Taxes 101 (Tax Basics 1/3)

You have three possible options for how to submit tax forms to the IRS:

  • You could e-file your forms.

E-filing is the preferred approach. It’s faster, easier, and you’re less likely to make mistakes when forms are submitted electronically.

If you make $69,000 or less, there are many software programs that let you submit your taxes for free. The IRS provides a list of software programs that people who earned less than $69,000 can use to file taxes at no cost. Our guide to the best tax software program can help you find the best software solution for you.

Many of the software programs that allow you to e-file your federal taxes at no cost also let you e-file your state tax returns for free, provided your income doesn’t exceed a certain threshold. These programs ask you simple questions about your life to identify deductions and credits you’re eligible for. They also walk you through the process of filling out all the required forms.

If your income exceeds $69,000, you can choose to use the software programs if you aren’t sure how to do taxes on your own. But depending on the program, you may have to pay a fee to file your federal and/or state taxes.

  • You could mail in your forms.
  • You can have your forms submitted for you.

How To Calculate Income Tax

Calculating your exact income tax is no easy task. Canadas tax system is a warren of baffling codes, 1.1 million words long.

A rough tax estimate can be done by first figuring out your total income minus any applicable deductions. Then simply multiply your income, per source, by its suitable marginal tax rate .

To get an estimate of your total net income and income tax, use an online tax calculator.

Prepare Information Return Form 1120

Although S corporations dont pay entity-level tax, they still file business tax returns, called information returns.

S corporations use Form 1120-S to report income, losses, credits, and deductions. It loosely resembles the C corporation return, Form 1120, so make sure you download the correct one.

Here is where you find one of the disadvantages of electing S corporation status: Form 1120-S has many built-in schedules and can get confusing fast. Keep a tax professional on metaphorical speed dial while you complete the S corp tax return.

Remember how S corp shareholders can be employees? Dont forget to deduct their W-2 wages on Form 1120-S.

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Extension To File Your Tax Return

If you cant file your federal income tax return by the due date, you may be able to get a six-month extension from the Internal Revenue Service . This does not grant you more time to pay your taxes. To avoid possible penalties, estimate and pay the taxes you owe by the tax deadline of April 19, 2022, if you live in Maine or Massachusetts or April 18, 2022, for the rest of the country.

What Is The Marriage Penalty

Taxes For Dummies 2008 by Eric Tyson

Not to be confused with the marriage penalty boxwherein you have to sit out weekend debauchery with the boys because of domestic dutiesthe marriage penalty is a quirk with the married filing jointly tax status that makes some couples pay more income tax than they would if they were single and filing separately. The reason: the tax brackets are different for married couples, which means the sum of your parts wont equal the whole of your income. On the bright side, if a couples combined income reaches the upper tax brackets and one earner makes significantly less than the other, you may pay less . The bad news: you cant avoid the marriage penalty by filing separately.

Hopefully, these taxes for beginners lessons help you start to unravel the chaotic mess that is our federal income tax filing system. As you learn more, youll find that its easier to connect the dots, so feel free to dive into the rest of the free personal taxes tutorials over at Khan Academy.

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Keep An Eye On Your Income

You need to file a tax return if you meet or surpass certain levels of income during the year. If youre employed, look at your pay stub for the year to date incomeand if you have more than one job, be sure to add up your income from all your employers. Remember to include income from other sources, too, such as money you make on rental property, anything you sell, investments or interest.

The Basics Of Llc Taxes

Though LLC taxes may seem like a dark cloud over your head that is always looming, once you get through some of the basics, they wont seem as scary.

In this section, we will cover the basics of LLC taxes, what you need to do for your specific type of LLC, what to do if you have employees, and what you do if you live in a state with sales tax.

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What Is A Tax Deduction

The term tax-deductible sounds better than it really is. A $10,000 tax deduction doesnt mean you get a $10,000 discount on your tax bill. When something is tax-deductible, it means it reduces your stated income. So, instead of paying taxes on $100,000 of income, you would pay taxes on $90,000 of income.

Gather Tax Filing Information

Etsy Taxes Explained 2022 For Beginners (Self Employed Taxes For Dummies) What Is Tax Deductible?

Youll need to do this whether youre hiring a tax preparer or doing the tax filing yourself. The goal is to gather proof of income, expenses that might be tax-deductible or win you a tax credit, and evidence of taxes you already paid throughout the year. Our tax prep checklist has more guidance, but heres a short version of what to round up:

  • Social Security numbers for yourself, as well as for your spouse and dependents, if any.

  • W-2 form, which tells how much you earned in the past year and how much you already paid in taxes.

  • 1099 forms, which are a record that some entity or person not your employer gave or paid you money.

  • Retirement account contributions.

  • State and local taxes you paid.

  • Educational expenses.

Also Check: When Are Self Employment Taxes Due

How Much Does A Tax Preparer Make And Whats The Average Salary For The Role

The amount of money a preparer can make is largely dependent on whether theyre a sole practitioner or work for a public accounting firm, the number of clients they can handle, and the geographical location of their practice.

So, while many first-year tax preparers may claim a starting salary around the $50,000, year one staff might be somewhere between $30,000-$40,000 at a different firm. And if youre serving as an intern, you might not make anything.

While the salaries of most regional firms will be set before you walk through the doors for your interview, the amount of money a sole practitioner can make is limitless . So, then the questions become: how many clients can you get? How much work can you get through? What kind of software can boost your efficiency and increase throughput?

Some people begin their careers at firms to get the first two years of experience. And then they break away and start a local firm. This allows you to get high-quality training to boost your skills out of the gate.

Several national and seasonal businesses also offer training to their preparers.

Will Capital Gains Tax Rates Change For 2022

Capital gains tax rates are the same in 2022 as they were in 2021: 0%, 15%, or 20%, depending on your income. The higher your income, the higher your rate. While the tax rates remain unchanged for 2022, the income required to qualify for each bracket goes up to adjust for inflation. The maximum zero-rate taxable income amount is $83,350 for married filing jointly and surviving spouses, $55,800 for heads of household, and $41,675 for married filing separately taxpayers.

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Is Income Tax Complicated

It can be, and that’s why so many people choose to use a tax agent like H& R Block to prepare their tax return. Getting professional help takes the stress out of the process and ensures your return is correct and lodged on time. Best of all, tax agents will often be able to highlight deductions you didn’t know you could claim!

Call 13 23 25 today or book an appointment at your nearest office.

Who Has To Lodge A Tax Return

Small Business Taxes For Dummies by Eric Tyson, Paperback

Taxpayers who must submit a tax return include:

  • Most resident individuals whose total income exceeds the $18,200 tax-free threshold for the income year

  • Every individual carrying on a business or profession regardless of income or loss

  • Any resident taxpayer earning less than $18,200 who has had tax withheld from that income through their job

Click here to read more about lodging for the first time.

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That’s All You Need To Know About Self Employed Taxes For Dummies

When it comes to being self-employed, you may know everything about how to find clients, but when it comes to the accounting side, it can be more difficult. That’s why these self-employed taxes for dummies can be a helpful guide. It can show when you need to create paystubs when required, pay for taxes, what is tax-deductible, and more. It can make sure you don’t run into any trouble with the IRS. Check out more of our articles and stay in the know!

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Protect Yourself From Tax

Tax ID theft occurs when someone steals your personal information to file a tax return using your personal data. Usually, the fraudulent tax filer will use your Social Security number to file your return in order to collect a refund. To protect yourself from tax ID theft, you can obtain a six-digit Identity Protection PIN from the IRS. IP PINs are known only to you and the IRS so the IRS is able to confirm your identity when you file your return. Learn more about how the IP PIN works and how to apply.

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When And How Can You Claim A Tax Refund

If you have overpaid your taxes during the year because too much money was withheld from your paycheck or because you submitted excess payments to the IRS, you can claim your refund simply by e-filing or mailing your tax returns. The IRS will send your refund via mail or you can submit your bank information and request to have your refund distributed using direct deposit.

E-filing and requesting a refund via direct deposit is the fastest way to obtain your refund. In most cases, you will have your refund within 21 days or less from the time you submit your return. If you mail in your return, it could take up to six weeks for your refund to arrive.

If you claim the EITC or the Additional Child Tax Credit, your refund will be delayed even if you submit your returns early and choose direct deposit. That’s because the Protecting Americans from Tax Hikes Act requires the IRS to hold refunds until mid-February when you claim these credits.

If In Doubt Get Informed: Contact A Tax Law Attorney

Capital Gains Taxes Explained: Short-Term Capital Gains vs. Long-Term Capital Gains

Anyone can make an honest mistake with regard to taxes but the IRS is strict about enforcement. Since everyone’s tax situation is a little different, you may have questions that aren’t easily answered through a simple online search. Get ahead of the curve and get help from an experienced tax law attorney.

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How Do You Save Money When Filing Your Taxes

It’s important to do everything you can to save money when you file your taxes. This means avoiding common — and costly — mistakes when you file. To make sure you don’t pay the IRS more than necessary, you should:

  • Keep receipts and claim all deductions and credits you’re entitled to.
  • Avoid claiming credits or deductions you aren’t eligible for, which could lead to an audit or penalties.
  • File and pay your taxes on time to avoid interest and late fees.
  • Use the right filing status and make the optimal choice between itemizing and claiming the standard deduction.
  • Contribute to tax-advantaged accounts such as IRAs and 401s that provide a tax break.
  • Get tax help if necessary so you don’t make costly errors.

Making the effort to do your taxes right and save as much as possible can leave you with more money in your pocket for other important financial goals.

When Do I Need To Do My Tax Return

You need to lodge your tax return as soon as possible after 30 June and no later than 31 October each year.

If you lodge your tax return through a tax agent, such as H& R Block, then you will normally be granted an extension of this deadline beyond 31 October, but only if you are listed with the ATO as a client of the tax agent by that date.

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Do You Need A License To Prepare Tax Returns

While the starting point for any preparer will be the PTIN process, a license is not the same thing. To become a preparer, you dont need a specific license. With the IRS, however, if you want representation rights, you need to be an enrolled agent, CPA, or attorney.

However, seven states require a license if you want to prepare in those geographical areas. And while many states call it a license its very similar to the federal PTIN both in design and in process.

The current states that require a separate credential include:

Many states exempt this requirement if you are a CPA or have other professional credentials.

How Do I Register For Vat

Nonprofit Bookkeeping and Accounting For Dummies by Sharon Farris ...

Need to register for VAT? This process is actually a lot simpler than you might think.

In fact, most businesses can register online through a simple form. Make sure you have details such as your turnover, business activity and bank details to hand, as youll need to enter this information to complete the process.

There are some cases where you cannot register online. This includes:

  • If youre joining the Agricultural Flat Rate Scheme, which is an alternative VAT scheme designed exclusively for farmers
  • If youre an EU business thats distance selling or importing goods to Nothern Island
  • If you want to apply for a VAT exception, which well cover in a later section.

If any of the above applies, youll need to complete a separate form in the post, or write directly to HMRC.

If you dont want to register yourself, you can always appoint an accountant or agent to register and submit VAT returns on your behalf. If youre not sure what the best thing to do for your business, it might be best to go through an accountant or agent for less stress and that added peace of mind.

Our recommended done-for-you VAT registration service:

While its relatively straightforward to register for VAT yourself, it is also a legal requirement for many business so its important its done correctly.

Our top-rated company formation agent, 1st Formations offer a complete hassle-freeVAT registration service that includes:

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Glossary Of Tax Terms

Disclaimer: Explanations on the terms are very condensed and may not be complete. They are not considered to necessarily reflect official position of the OECD in interpreting international tax terms, for example, in the tax treaty context.

1. The extent of a person’s beneficial ownership of a particular asset. This is equivalent with the value of the asset minus the liability to which the asset is subject. 2. Paid-in capital plus retained earnings in a corporation

JEOPARDY ASSESSMENT — Tax assessment made where there is some danger of tax being lost.JOINT RETURN — A single return made jointly by husband and wife.JOINT-STOCK COMPANY — Company with legal personality and whose capital is divided into shares. The shareholders are generally liable only to the extent of the nominal value of their shares.JOINT VENTURE — Term which is loosely used to describe a relationship between parties carrying on an undertaking in common for their individual or common gain. This can be either an incorporated venture or an unincorporated venture. — Bonds and debentures issued by companies that have a low credit evaluation from a rating agency such as Standard & Poor’s or Moody’sJURIDICAL DOUBLE TAXATION — See: Double taxation, economic and juridicalJURISDICTION — The power, right, or authority to interpret and apply tax laws or decisions.

How Do I Keep Up With New Tax Law Changes

Keeping up with tax law changes is imperative for both new and experienced preparers. As a result, most preparers invest some time each day checking on any IRS changes, technical corrections, or any other state or local changes that might impact their business.

An excellent first stop is the IRS website, which is full of publications and instructions that will help new and experienced preparers navigate changes to the tax code, as well as commonly asked questions and other useful tips.Checkpoint Edge from Thomson Reuters is another resource for tax professionals who are looking to do their jobs with more accuracy, confidence, and daily news updates. Checkpoint Edge provides you with up-to-date research materials, editorial insight, productivity tools, online learning, and marketing resources that add value to your firm immediately.

Alternatively, if youre on a tight budget, a few well-chosen tax books may be sufficient to begin with.

“Understand that you cannot possibly know every tax law ever written, especially in times of sweeping tax law changes as we are experiencing today. Make yourself valuable by honing your tax research skills. If you don’t know the answer, you must know how to find the answer.”

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