That Word Divorce Now Applies To You
Filing taxes after a divorce can get contentious for any number of reasons, not the least of which is that your ex-spouse may get a new accountant with sharp red pencils ready to correct your past tax return handiwork.
You could defend that work yourself, to try to head off a demand that the two of you refile all the returns. Or you could hire your own ace to smooth things over and return to your favorite software next year.
Is It Worth Your Time
Lets start off with possibly the one thing most of us wish we had more of, time. Its a currency hence why we use the term Spend time, because when used it usually cant be retrieved, its exchanged for the company of our loved ones family and friends, to allow us to binge watch Netflix, get groceries, walk the dog and the list goes on. In the modern world, we enjoy the privilege of having time to do nothing more than unwind while scrolling on Instagram or watching that new infographics video.
So if you dont have time to tie your shoe lace then carving out time to sit down and do your own taxes doesnt seem very attractive, does it? This will require you to get up to date with the latest changes in the Tax Laws which change every year, gather all your documents and the actual time to do the data entry into whatever software you find. .
Filing your taxes is far more serious than tying your shoe lace of course and finding that time is probably more of a priority, seeing that it determines the amount of actual MONEY you will either be paying or receiving. If youre someone that believes no one will do it as well as you, then theres an incentive to find the time.
If you dont have the time to catch up on the tax changes each year which includes the deductions and credits you may be eligible for or that you might no longer be eligible for then it might be worth it to get help.
So Who Should Hire A Professional
Maybe you got married, moved states for a new job, had a baby, bought property, earned foreign income, and then got divorced all in the same year. Maybe you made most of your money doing a million different side gigs. Maybe youre just too stressed to think about any of this. Or maybe you work 80 hours a week and worry where youll find the time to actually figure this out. If it takes you five hours to gather all of your records and fill out the appropriate forms, how much monetary value would you put on that time? Is there a better value in hiring a professional?
A professional you can meet up with in person and ask questions to might give you priceless peace of mind, too. Nearly one-in-three Gen Zers would be willing to pay between $100 and $250 if it guaranteed their taxes would be filed completely accurately, Marineau says. The millennial population was even more likely to spend the same amount to ensure accuracy in filing their taxes.
You should also find out if taking the standard federal deduction makes sense for you. That means automatically deducting $12,400 if youre filing single , $18,650 if youre head of household, and $24,800 if youre married and filing jointly. The standard deduction means that you dont have to prove why you should be able to deduct a given amount from your taxable income youre agreeing to just take the amount the IRS has set for your filing status.
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Save The Right Paperwork All Year Long
Stay on top of tax-related paperwork throughout the year it will make your life easier during tax season. You might want to keep receipts for things like charitable donations, work-related expenses and medical bills, or other items from step 4. You may also want to keep statements from student loans or investments and any grants or fellowships. Having these handy and organized can help you determine whether to itemize and make the process easier. You should keep your paperwork after you file, too. The IRS recommends keeping records for at least three years.
What If I Only Receive Social Security Benefits
In most cases, if you only receive Social Security benefits you wouldn’t have any taxable income and wouldn’t need to file a tax return.
One catch with Social Security benefits is if you are married but file a separate tax return from your spouse who you lived with during the year. Then you will always have to include at least some of your Social Security benefits in your taxable income to see if it is greater than your standard deduction. If your taxable income is greater than you standard deduction, you would need to file a return.
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Does Your State Require State Income Tax
Some states, including Florida, Nevada, Tennessee and Texas, impose no state income tax and therefore require no annual tax return. Others, such as California, Illinois and New York, charge an income tax to residents, which means filing a separate return. State tax returns are far less complicated than federal returns, but they add one more layer of complexity to the process. TurboTax charges an additional fee for state tax-prep software.
When A Dependent May Need To File A Tax Return
Taxpayers who are claimed as a dependent on someone’s tax return are subject to different IRS filing requirements, regardless of whether they are children or adults. A tax return is necessary when their earned income is more than their standard deduction.
The standard deduction for single dependents who are under age 65 and not blind is the greater of:
- Or the sum of $350 + the person’s earned income, up to the standard deduction for an unclaimed single taxpayer which is $12,550 in 2021.
A dependent’s income can be “unearned” when it comes from sources such as dividends and interest. When a dependent’s unearned income is greater than $1,100 in 2021, the dependent must file a tax return.
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Irs Rules Regarding Your Age
As the table above indicates, individuals younger than age 65 must file if they make certain amounts. The earnings threshold amounts go up a bit for individuals 65 and up.
For married couples that file separate tax returns, the earnings target is based on the age of the older spouse.
In most situations, your age for tax purposes depends on how old you were on the last day of the year. But when it comes to determining whether you have to file a return, the IRS says that if you turned 65 on New Years Day, you are considered to be 65 at the end of the previous tax year. The one-day grace period allows you to use the higher-income thresholds to determine whether you must file a tax return.
B Hire And Work With A Tax Preparer
While it’s never been easier to do your own taxes using software, as your financial life gets more complex you might wonder if you’re missing something and should get someone to prepare and help file your taxes. If you have a business or a healthy side gig, or you just want help understanding all of the forms, you might seek out a professional’s guidance.
If you don’t want to meet in person with a tax preparer, theres a way to file taxes without leaving the house. A secure portal lets you share documents electronically with a tax preparer. Typically, the preparer will email you a link to the portal, youll set up a password and then you can upload pictures or PDFs of your tax documents.
» Find a local tax preparer for free:See who’s available to help with your taxes in your area
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Irs Free File Available Until October 17 Midnight Eastern Time
Welcome to IRS Free File, where you can electronically prepare and file your federal individual income tax return for free using tax preparation and filing software. Let IRS Free File do the hard work for you.
IRS Free File lets you prepare and file your federal income tax online using guided tax preparation, at an IRS partner site or Free File Fillable Forms. It’s safe, easy and no cost to you for a federal return.
To receive a free federal tax return, you must select an IRS Free File provider from the Browse All Offers page or from your Online Lookup Tool results. Once you click your desired IRS Free File provider, you will leave the IRS.gov website and land on the IRS Free File providers website. Then, you must create an account at the IRS Free File providers website accessed via IRS.gov to prepare and file your return. Please note that an account created at the same providers commercial tax preparation website does NOT work with IRS Free File: you MUST access the providers Free File site as instructed above.
Did You Have A Life Event This Year
When life happens, all sorts of tax consequences can ensue. A divorce or a major health problem can wreak havoc on a once-simple tax picture. Financial windfalls and shortfalls can also dramatically change your tax outlook. If you got an inheritance from a late family members trust, you might not receive the required Form K-1 until months after the April 15 deadline, which means filing for an extension.
If you have a mortgage forgiven through a short sale, or if you have student debt retired after negotiating a financial-hardship reduction, you might receive an IRS Form 1099. In most cases, youll have to pay taxes on the forgiven amount, because the IRS considers it as income. If youre older than 70 and have an Individual Retirement Account, youll need to start preparing for annual required minimum distributions.
A life event doesnt necessarily need to send you straight to your CPAs office, but it can raise the level of tax preparation difficulty and the chances that youll want to hire a professional.
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Tax Software And Professional Tax Preparation At A Glance
Some taxpayers with complicated income situations are highly capable of doing their own taxes, while other taxpayers with simple finances still prefer to hire an accountant. While theres no right or wrong answer, there are considerations that can help you decide which option is best for you. Consider the following situations when deciding between tax software or an accountant:
Tax Software vs. Accountant
- Multiple income streams
Consider Your Gross Income Thresholds
Most taxpayers are eligible to take the standard deduction. The standard tax deduction amounts that you’re eligible for are primarily determined by your age and filing status. These amounts are set by the government before the tax filing season and generally increase for inflation each year.
The standard deduction, along with other available deductions, reduces your income to determine how much of your income is taxable. As long as you don’t have a type of income that requires you to file a return for other reasons, like self-employment income, generally you don’t need to file a return as long as your income is less than your standard deduction.
For example, in 2021, you don’t need to file a tax return if all of the following are true for you:
- Don’t have any special circumstances that require you to file
- Earn less than $12,550
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Do I Need To File A Tax Return
You may not have to file a federal income tax return if your income is below a certain amount. But, you must file a tax return to claim a refundable tax credit or a refund for withheld income tax. Find out if you have to file a tax return.
Can I Receive A Larger Refund With Deductions
In many cases, working with a tax professional can actually save you money. Even though you have to pay your accountant, they often end up paying for themselves by helping you receive a larger refund.
At ProActive Tax Solutions, we charge $350 for an individual Form 1040, with additional fees for other forms and schedules. But just by paying that cost, you gain access to a professional who is up-to-date on the most current tax regulations and laws and is dedicated to helping to minimize your tax burden.
We can potentially save you money by finding deductions you dont know about or just by helping you avoid overpaying.
For example, did you know that there are deductions available for people paying student loans? Those deductions can be confusing though, and its easy to claim them incorrectly in a way that catches the Internal Revenue Services attention and makes them more likely to perform an audit. By working with a tax professional, you can get the largest refund possible in a way thats ethical and legal.
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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.
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A File Taxes Online With Tax Software
If youve used tax software in the past, you already know how to prepare and file taxes online. Many major tax software providers offer access to human preparers, too.
TurboTax, H& R Block, TaxAct and TaxSlayer, for example, all offer software packages or support options that come with on-demand, on-screen or online access to human tax pros who can answer questions, review your return and even file taxes online for you.
The IRS Free File program can get you free online tax preparation software from several tax-prep companies, including major brands. You must have $73,000 or less of adjusted gross income to qualify.
» MORE:See our picks for the year’s best tax filing software
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Myths About Doing Your Own Taxes
OVERVIEW
While a professional tax adviser may help in certain situations, in many cases taxes can be relatively simple. Like many things in life, once you’ve filed your own taxes once, a lot of the drama vanishes.
If you’ve never filed your own taxes, you might be scared off by all the mystery and complexity that seemingly surrounds the process. However, like many things in life, once you’ve filed your own taxes once, a lot of the drama vanishes. While a professional tax adviser may help in certain situations, in many cases taxes can be relatively simple. Hiring a professional may not have the effect you think in terms of audit protection or liability.
Are There Other Factors That Will Complicate My Tax Return
Multiple streams of income arent the only things that can make your tax filing process more complex. If you own property, have investments, or can claim dependents, those things will all change your tax return.
Additionally, if any of the following situations apply to you, youll definitely want to work with a tax professional:
- You own your own business or are self-employed: If youre a business owner or self-employed individual, your taxes will automatically be much more complicated. There are also little known write-offs that could save you money if you work with a tax professional.
Plus, online filing services charge much higher rates for self-employed individuals and business owners, so its probably more cost effective to hire a tax accountant anyway.
Were proud of our transparency around pricing, and you can see how much your tax preparation is going to cost right here on our website.
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Learn About Your Deductions
Learning about your deductions can help you to save money on your tax bill. Common deductions include medical or dental expenses, payments on your mortgage interest, and the child tax credit but there are many things that can be considered a tax deduction.
If you have a question about what deductions or credits may apply, its best to check directly with the IRS for the various programs for individuals.
Choose Between The Standard Deduction Or Itemizing
When you file your taxes, you have two choices: Take the standard deduction or itemize your deductions. This is a pretty big deal, because tax deductions lower your taxable incomeand the lower your taxable income is, the smaller your tax bill will be!
So, how do you decide which option to take? Well, the standard deduction for the 2021 tax year for single filers is $12,550 and $25,100 for married folks filing jointly.1 Those numbers get bumped up for the 2022 tax year to $12,950 for individuals and $25,900 for maried filing jointly.2 If your individual deductions add up to more than that for the year, youre better off itemizing. If not, save yourself the hassle of digging through filing cabinets for old receipts and just take the standard deduction.
If you do plan on itemizing deductions, youll need proof to back up your claims. So, dont forget any receipts for deductions and tax credits like:
- Charitable giving
- Medical expenses
When in doubt, it never hurts to reach out to a tax pro and get their advice on how to do your taxes this year.
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