Thursday, November 24, 2022

How You Do Your Own Taxes

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What To Look For In A Tax Preparer

How to file your own Taxes in Canada for FREE!

You’ll want someone in your corner if you get an audit notice, so find out if the professional you’re considering hiring can represent you before the IRS. Not all can. Some can go with you to an audit, while others can actually go in your place and spare you the ordeal.

Enrolled preparersare registered with the IRS and can sign tax returns and help with tax audits. Unenrolled preparerscan’t do either of these things. An accountant who is not a CPA is considered to be an unenrolled preparer.

Enrolled agents have earned this designation through a rigorous test of tax law and are specifically employed to help with tax issues. CPAsare accountants who have passed a licensing exam in the state in which they practice. CPAs can deal with accounting and payroll issues in addition to tax issues.

You’re ultimately responsible for your tax return no matter who does your taxes, and you alone are answerable to the IRS if the return is fraudulent or inaccurate. It’s something to keep in mind.

Can I File My Taxes Online For Free If Im A Non

Yes. TurboTax makes it easy to file your Candian tax return as a non-resident. In fact, if youre a non-resident you can use any of the TurboTax Online products, including TurboTax Free. For more info, read about How Residency Status Impacts Your Tax Return

With more than 20 years experience helping Canadians file their taxes confidently and get all the money they deserve, TurboTax products, including TurboTax Free, are available at www.turbotax.ca.

Understand How Your Taxes Are Determined

The government decides how much tax you owe by dividing your taxable income into chunks also known as tax brackets and each chunk gets taxed at the corresponding tax rate. The beauty of this is that no matter which bracket youre in, you wont pay that tax rate on your entire income.

The progressive tax system in the United States means that people with higher taxable incomes are subject to higher federal income tax rates, and people with lower taxable incomes are subject to lower federal income tax rates.

» MORE:Make sure you’re not overlooking any of these 20 popular tax breaks

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Types Of Taxable Income

You have to report any taxable income you earn inside and outside Canada when you file your tax return. This includes:

  • any full-time or part-time work
  • self-generated income
  • rental income, including renting out a portion of your home
  • investments
  • your pension

You do not have to report certain non-taxable amounts as income, including:

  • allowances
  • elementary, secondary and post-secondary school scholarships

Find Out Which Forms You Need To File

This is how much it will cost you to do your own taxes ...

The first step to doing your own taxes is figuring out which paperwork youll need to complete. If youre a regular employee, you have the option of filing the long 1040 income tax return form or the short 1040A form.

If youre single or youre a married couple filing jointly, you can fill out the super short 1040EZ form as long as you have zero dependents, youre under the age of 65 and your taxable income falls under $100,000.

Self-employed people and others who pay estimated taxes will need to submit tax form 1040-ES. Additional forms that you need will depend on whether youre itemizing your deductions or listing capital gains and losses , for example. There are also forms you can fill out to account for tax breaks, special circumstances like thefts and other earnings, like gambling winnings.

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If You Hire A Professional

The majority of Americans opt to hire an accountant or other tax professional to prepare their tax returns, because they want to be sure that it’s done right. They don’t want to hear from the IRS after they file.

Be sure to find a tax professional with a level of experience and specialization that’s suitable for your needs if you choose this option. Some accountants are general practitioners. Others specialize in things such as helping Americans who live overseas or self-employed individuals in a variety of businesses.

The two most popular professional credentials for tax preparers are certified public accountant and enrolled agent . CPAs are trained in a wide range of accounting procedures, and some of them specialize in tax preparation. EAs are trained specifically in tax procedures.

The Case For Doing Your Own Taxes

You don’t have to be a tax expert to file your own tax returns — especially if you have a simple tax situation.

Let’s say you’re a 28-year-old single woman who earns $50,000 per year in W-2 income. If you have no dependents or children and no other sources of income, you’ll have one of the easier tax returns. All you have to do is complete the basic personal and tax questions and transfer the numbers from your W-2 to your tax return to determine how much you owe or receive as a refund.

Filing online makes the process easier and helps you to avoid the most common filing mistakes. Free tax software is available through the IRS, allowing you to file your taxes for free at any of the partner tax sites. You just have to meet the annual income requirements to qualify for the service. The tax software is really easy to use and does all the necessary calculations for you. If you’re comfortable using the software and submitting your tax return on your own, this is a great way to save money at tax time.

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Deductions: Standard Or Itemized

Earlier, we discussed how tax deductions come in two forms: standard or itemized. The standard deduction is a fixed amount itemized deductions are complicated, but could reduce your tax bill more than the standard deduction. You can only take your deduction one way or the other, so you have to choose between taking the standard deduction or itemizing your deductions.

Which option you choose depends on your unique financial situation. The general rule is if the total of your itemized expenses is greater than the standard deduction , you should itemize your deductions. If the standard deduction is greater than your itemized expenses, you should take the standard deduction. Duh.

Most young people starting out in life dont have enough tax deductible expenses to warrant itemizing their deductions. Stick with the standard deduction until you have a mortgage and are filling giant trash bags full of clothes and leaving them on your doorstep for Prevent Blindness.

Reasons To Stop Doing Your Own Taxes

5 Tips for Doing Your Own Business Taxes – All Up In Yo’ Business

Software cant stop you from committing human errors. And life gets complicated for everyone, from Airbnb hosts to widows.

Doing your own taxes really isnt like changing your own oil.

Even if you enjoy such tasks, getting either one of them wrong as a do-it-yourselfer can be expensive. But as complicated as a car engine may be for a relative novice, an encounter with the tax code offers so many more costly ways for things to go spectacularly awry.

This tax season, consider the danger of human error: namely, your own.

Here are nine situations that may persuade you to turn the task over to a pro.

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Should I Take The Standard Deduction Or Itemize My Taxes

If you have a sizable amount of tax credits and deductions, it wouldnt hurt to run the numbers to see if itemizing your taxes could result in a lower tax obligation for you versus a standard deduction. Itemizing deductions could even put you in to a lower tax bracket.

With the Tax Cut & Jobs Act enacted a few years ago, the standard deductions had nearly doubled, and significantly fewer taxpayers are itemizing deductions .

The standard deductions for 2020 are:

  • $12,400 for single filers
  • $12,400 for married, filing separately
  • $24,800 for married filing jointly
  • $18,650 for head of household
  • $0 personal exemption

If your itemized deductions dont surpass those amounts, the standard deduction is the way to go .

Some Things To Consider

Consider the cost of hiring a tax preparer versus the cost of tax software. Several of the business tax software programs come with online support from CPAs or Enrolled Agents who can help with questions, but some might not be trained or experts in business taxes as opposed to personal taxes.

A tax professional who is knowledgeable about business taxes might cost more, but they might be able to find loopholes that can save you money.

It’s possible to do the return yourself using tax prep software if you must calculate cost of goods sold, but getting the help of a business tax professional is probably best in all other cases.

It can be valuable to you as a businessperson to get tax advice on an ongoing basis, throughout the year and not just before tax time. This will help keep your tax liability as legitimately low as possible.

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What If I Need To File A Tax Extension

If, for one reason or another, you are unable to file your tax return by the May 17 tax deadline, you can file for an IRS tax extension, which will extend the due date of your filing by 6 months . The extension must be postmarked by the May 17 deadline also.

Also, a key disclaimer an extension of time to file is not an extension of time to pay. Any taxes due are still due on the normal filing deadline date.

Choose The Right Tax Software

Why You Shouldnt Do Your Own Taxes Anymore

Looking at the tax forms youll be required to submit will give you a sense of how difficult tax filing will be. From there, you can pick the tax software that will best meet your needs.

If you dont mind waiting a while to get your tax refund, you can send paper forms to the IRS through the mail. Otherwise, you can look into using one of the online tax programs. There are quite a few to choose from. Some are entirely free while others have some free features but charge fees for everything else.

Dont have time to compare and contrast tax software? You can settle for the IRS Free File Software. It allows you to file your federal income tax return free of charge.

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How To Calculate Your Taxes

If you work as an employee, your employer will send you a Form W-2 in the mail and possibly electronically. This documents all the details related to your pay, deductions, and other elections made during the tax year.

It includes your gross pay, pay withheld and remitted to the IRS, as well as other money used to pay for various deductions like your 401, health savings account , life insurance, and more.

If you’re self-employed, you should expect to receive 1099-NECs from any company that paid you $600 or more during the tax year. Once you gather all of this information, you’ll also need to track all of your receipts and other documents substantiating your costs of doing business.

One way to avoid paying income taxes is through investing in assets that pay qualified passive income. These are some of the best assets to invest in because you can receive income but not pay taxes on it.

Such examples include qualified dividend income, municipal bond income, or long-term capital gains on the sale of certain assets. For these to be tax-free, you’ll need to have income below certain levels, however.

Personal Touch Vs Online Convenience

There are a lot of things to consider when deciding between using tax software and hiring an accountant. We’ll get into the details in the next section, but first, let’s outline the major differences.

When you hire an accountant or other tax professional, you get a person to do your taxes. That person can answer all your specific questions and tailor their knowledge to your needs. To get a feel for their strengths and abilities, you can email them and check with other people who’ve used them before.

With online tax software, you get the convenience of filing your taxes from anywhere at any time. You don’t have to worry about turning over your information to another person. Tax software tends to be cheaper than hiring a person as well, meaning you could save yourself some money.

The other big thing to consider is how complex your taxes are. If you have one job and need to file only one W-2 form, filing with an online program makes a lot of sense.

If you have multiple streams of income say, a full-time job, a rental property and a side hustle your taxes are going to be a lot more complicated. There are specific forms you need to file for rental income. And the deductions you can take for your side hustle and your rental property are going to vary. Hiring a professional to make sure all the details are covered may make the most sense.

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You Have Become A Landlord

In high-cost areas, it can seem as if everyone is putting a room or an entire dwelling up for rent at least some of the time. And very few of these ragtag hoteliers, Ms. Cochrane said, understand depreciation.

Strange as it may seem, the tax code declares that your home depreciates even as it may be rising in value , just so long as youre a landlord and owner of the property.

But the math is messy. Buildings depreciate, but land does not. A single-family residence and commercial property depreciate at different rates. When you sell, there are recapture rules you need to follow that relate to what kind of capital gain or loss you may declare. And then there is the tax rate and all the rest.

Experienced landlords may be able to figure it out as they go. Or they may not know what they dont know.

How Complex Is Your Financial Situation

Should You Do Your Own Taxes

Doing your taxes is simplest when you dont have complex forms to fill out. For example, if you take the standard deduction and your income sources are straightforward, you may be able to do your taxes on your own. Low-cost software can also guide you through how to do your own taxes.

Be aware that software can walk you through filing a return, but it cant give advice. As the complexity of your financial situation increases, including questions about income, capital gains and more, you may want to reduce uncertainty by enlisting a tax professionals help, especially so you dont miss out on possible deductions.

An experienced tax preparer can help answer those types of questions and help you itemize or claim everything. Claiming a standard deduction may not always be the best for you financially.

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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 May 17, 2021.

How Tax Brackets Work

How much tax you must pay begins with your total or “gross” income from all sources. You can then claim any deductions to which you’re entitled. These subtract from your gross income to arrive at your taxable income.

The federal government uses a progressive tax system, which means that the higher your taxable income, the higher your effective tax rate will be. These rates are determined by tax brackets.

For example, youre in the 24% tax bracket for tax year 2020 if you were single and your taxable income was between $85,525 and $163,300. But only the portion of your income above $85,525 will be charged at that 24% rate. The IRS adjusts these taxable income amounts annually for inflation. These taxable income thresholds increase to $86,375 and $164,925 for the 24% tax bracket in tax year 2021, the return you’ll file in 2022.

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The Advantages Of Using Tax Software

PriceThere is no way around the fact that you will pay less for a software package than you will to hire a CPA or another qualified tax professional. The price of tax preparation software ranges from almost zero for basic filers to several hundred dollars for more in-depth service and complicated returns. On the other hand, the least expensive tax preparers will cost at least $100 and a CPA is likely to charge at least twice that amount. The upfront savings of using tax software over an accountant is one of the most attractive benefits of filing your own taxes.

SpeedOnce you have all the necessary documents in front of you, it is possible to complete your own taxes in less than an hour. In contrast, the best accountants will usually take from several days to a few weeks to process your paperwork and file your forms.

SimplicityGood tax preparation software walks you through the process very quickly and easily. For those who have only a few deductions, sources of income, or investments, there is little need to sit down with an accountant to sort it all out.

Tax On State Benefits

Have you ever wanted to learn how to do your own taxes ...

Your tax code can take account of taxable state benefits, so if you owe tax on them its usually taken automatically from your other income.

If the State Pension is your only income, HM Revenue and Customs will write to you if you owe Income Tax. You may need to fill in a Self Assessment tax return.

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