Why Do I Taxes This Year And Not Last Year
Perhaps the most frustrating situation occurs when you find that you suddenly owe a tax bill when you have never owed money in the past. Possible reasons for a sudden tax bill include:
A higher tax bracket. Earning even slightly more money can bump you into a higher tax bracket if you were close to the limit. If you find yourself in a higher tax bracket, your overall liability could increase, leading to a bill in April.
Changes to the tax code. If the tax code changes and your tax rate increases, you may owe more money than you did in the past, even if your income is the same. Likewise, if credits or deduction you once claimed become unavailable, you may owe money to the IRS when you never have before.
Loss of a dependent. If you had a dependent child who recently became too old to claim, you will lose all of the tax benefits associated with that child. If you have been receiving these benefits in the past, it is likely that your tax bill will increase substantially.
Change in filing status. If you changed your filing status, it may impact your tax liability. For example, if you got a divorce and changed your filing status from married filing jointly to single, your tax bill is likely to increase, especially if your spouse earned less income than you.
How To Avoid Owing More In State Taxes
If you want to avoid having to ask why do I owe state taxes next year, there are some things you can do to plan ahead. First, check your tax withholding with your employer to see if youre withholding the appropriate amount based on what you earn, your filing status and the deductions or credits you anticipate taking. If necessary, you can fill out a new Form W-4 to update your withholding.
If youre self-employed, review what youre paying in estimated quarterly taxes. Estimated quarterly tax payments allow you to pay into the federal and state tax systems through the year in place of an employers withholding. If you owed state taxes because you underpaid your quarterly taxes, then you may need to increase what you pay in each quarter.
Next, consider any life changes that may have impacted your tax filing. For example, if you got divorced or separated and had to change your filing status that can affect how youre taxed. But you might be able to offset the possibility of a bigger state tax bill by increasing your deductions or qualifying for tax credits.
Contribute To Or Open An Ira By Tax Day
Contributions to a traditional IRA can be tax-deductible. You have until the May 17, 2021, tax deadline to contribute to an IRA, either Roth or traditional, for the 2020 tax year. The maximum contribution amount for either type of IRA is $6,000 or $7,000 if you’re age 50 or older. See all the rules here.
» MORE: Learn how IRAs work and where to get one
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Taxpayers Should Also Keep End Of Year Documents Including:
- Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance Child Tax Credit payments
- Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the Recovery Rebate Credit
- Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance Premium Tax Credits for Marketplace coverage
Understand How Education Savings Plans Work
Parents and students can save for school using education savings plans. These plans can help pay for elementary, secondary, and higher education expenses. The money you save or withdraw from your savings plan for qualified education expenses is tax-free. There are two types of savings plans:
529 plans are qualified tuition programs sponsored by states and colleges. Theyre authorized under Section 529 of the Internal Revenue Code. With these plans, you can:
Prepay or contribute funds to an account to help cover qualified higher education expenses
Transfer or rollover funds from the 529 plan to an Achieving a Better Life Experience account. These funds can benefit the savings account holder or a family member. Learn how an ABLE account can help a person with a disability pay for education, housing, health, and other qualified expenses.
Pay off up to $10,000 in student loan debts.
Pay for fees, books, supplies, and equipment required under qualified apprenticeship programs.
The Coverdell Education Savings Account can be used to pay for eligible K-12 and higher education expenses. You may contribute up to $2,000 per year for each eligible student. When you open the account, the person receiving the benefits must be under 18 or have special needs.
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Why Should I File Early
Ruhle said that there are several benefits to filing early.
If you think you will owe money, filing early will give you more time to pull together funds for any payments you may need to make. Having that time to get money together can help you avoid paying interest or penalties on top of your taxes.
If you’re owed money, the sooner you get the paperwork in, the sooner you’ll get your refund, or any stimulus money that you may be owed! According to Ruhle, tax preparers say that filing online with direct deposit is the “most foolproof way” to get your refund on time.
Even if you usually file on paper, consider using digital options this year: Paper checks may be seriously delayed due to the pandemic.
Who Has To Pay Estimated Taxes
You probably have to pay estimated taxes if you file as a self-employed individual, a sole proprietor, a partnership, or an S corporation shareholder. Freelancers, contractors, and others whose earnings are reported on a 1099 instead of a W-2 also need to pay estimated taxes.
In particular, you need to make estimated tax payments if you expect to owe $1,000 or more in taxes when you file your annual return. The same is true for corporations that expect to owe at least $500.
If you donât know whether youâll owe that much, you should calculate your tax liability to be sure. Not paying estimated taxes when you need to can result in penalties.
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What If I Didnt File A 2019 Or 2020 Tax Return And I Didnt Use The 2020 Irs Non
If you arent normally required to file taxes, use the new IRS Non-filer Portal. This tool allows you to sign up for the CTC advance payments and claim any missed stimulus checks. You will be asked to provide your information, including the number and ages of your qualifying children.
If you have a filing requirement or are eligible for other tax credits, you will need to file a 2020 tax return to get the CTC advance payments.
Why Do I Owe Money On My Tax Return 2021
- Another potential issue resulting in owed taxes is the failure to file them on time. Generally speaking, the annual due date for federal taxes is April 15 . State tax due dates may vary. When you file late and dont apply for an extension on time, you could incur late fees and interest that make your tax bill higher.
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Why Does The Irs Overestimate Tax Withholding
The IRSs system is designed to generally overestimate how much each citizen owes in taxes to the government. The IRS is essentially taking a loan from you instead of the other way around.
This overestimation of taxes owed is why about 70% of U.S. taxpayers normally end up getting a refund after tax season is concluded. Some love it, as its seen as a forced saving. Others bemoan the fact that theyre really just being paid back their own money they didnt need to pay in the first place.
Teachers Can Claim Personal Protective Equipment On Their Tax Return
If you are a teacher or K-12 educator, you can deduct up to $250 for unreimbursed expenses for personal protection equipment purchased for your classroom in 2020 on your tax return. You would include this amount on Line 10, Schedule 1 of Form 1040. These items include face masks, hand soap, sanitizing wipes, gloves, and other personal protective equipment.
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Stimulus Impact On The 2020 Tax Season
If you were unemployed during part of 2020 and received unemployment benefits, you likely already paid taxes on those earnings. According to this new bill, you no longer owe taxes on unemployment income in 2020, up to $10,200.
I was partially unemployed in 2020 and received $4,500 in unemployment benefits. My wife and I landed in the 12% tax bracket in 2020, so we paid approximately $540 in taxes on this money. With the passing of the 2021 stimulus, well soon be getting this money back!
Were you unemployed and already filed your 2020 taxes? Then youll likely be getting some money back too!
Are you thinking that $540 isnt that big of a deal?
What if you received $10,200 in unemployment tax and you were in the 22% tax bracket? You could have $2,244 coming your way!
Youve Made Use Of A Company Car But You Didnt Keep A Logbook
If you have access to a car that is owned by your employer, the taxable value of the vehicle will be added to your salary each month and it will be subject to monthly PAYE. The fringe benefit is calculated using a formula that takes the value of the car into account.
As a rule of thumb, 80% of the fringe benefit is subject to monthly PAYE. This is largely based on the assumption that you spend 80% of your travel expenses for personal use and only 20% for business purposes. If you find that you travel more for work, your employer can opt to tax you a mere 20%, as opposed to the 80% business assumption.
It is in your best interest to submit details of your actual mileage in a detailed travel logbook to SARS at the end of the year. If you dont, you could end up owing SARS, as 100% of your fringe benefit will be taxed. This means that you will have to pay tax on the remaining 20% of your travel expenses , which was not taxed throughout the year.
TaxTim Tip: if youre having trouble creating a travel logbook, you can make use of TaxTim s FREEvehicle logbook app
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Resident Individual Income Tax
Resident taxpayers who are required to file a federal individual income tax return are required to file a Louisiana income tax return, IT-540, reporting all of their income. If a Louisiana resident earns income in another state, that income is also taxable by Louisiana. A temporary absence from Louisiana does not automatically change your domicile for individual income tax purposes. As a resident taxpayer, you are allowed a credit on Schedule G for the net tax liability paid to another state if that income is included on the Louisiana return.
Residents may be allowed a deduction from taxable income of certain income items considered exempt by Louisiana law. For example, Louisiana residents who are members of the armed services and who were stationed outside the state on active duty for 120 or more consecutive days are entitled to a deduction of up to $30,000. In each case, the amount of income subject to a deduction must be included on the Louisiana resident return before the deduction can be allowed.
Why Else Would I Owe Taxes This Year Heres What To Look For
If youre wondering, why else would I owe taxes this year? The first question you should ask yourself is what other changes were there in my tax situation?
It could be one big change or several changes that made an impact:
- Filing changes But big life changes, such as marriage, divorce, retirement or adding a dependent can affect the your tax situation such as the filing status for which you are eligible and other aspects of how you are taxed. For example, changing from Head of Household to Single will affect your tax bracket and the credits and deductions you can take. If youre married, be sure you understand the difference between the status of .
- Older children To claim the Child Tax Credit, your child must have been under age 18 at the end of the year. If they no longer qualify, you no longer can get the Credit. This significant drop can mean a great deal to your bottom line and may answer the question of why do I owe taxes?
- Other changes in your life can impact your eligibility for various types of credits and deductions. For example, changes in your income might affect whether you qualify for the Earned Income Credit. Or, if youre a college student, maybe you were previously able to claim the American Opportunity Credit, but due to an enrollment status change are no longer eligible.
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Why Is The Child Tax Credit Such A Big Deal
Lets say you earned $100,000 in 2020 and over the course of the year, you paid in $8,000 worth of federal taxes. Sure enough, when you filed your taxes, you owed $8,000but then you were able to deduct $2,000 from your tax bill for each kid! With your two young kiddos, you were able to deduct $4,000!
So, instead of paying exactly the right amount of tax throughout the year, you received a $4,000 refund! YESSS! .
- $8,000 paid in federal taxes
- $8,000 owed, but $4,000 in child tax credits
- Result = a $4,000 tax refund
Start With Income Tax
The basic process for finding your tax liability starts with your adjusted gross income . If you expect your income this year to be similar to last year, you can use the AGI on last yearâs tax return as a starting point.
From your AGI, subtract either the standard deduction or the amount of your itemized deductions. The number you have after these deductions is your taxable income.
Once you know your taxable income, use the federal income tax brackets to find how much federal income tax you owe.
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Why Do I Owe So Much In Taxes What Can I Do About It
While some taxpayers prefer to have more in their paycheck vs. receiving a refund, many of us look forward to getting money back at tax time.
- If you owe taxes this year and hoped for a refund instead, you can update your withholding. Its likely that youll owe again next year unless you complete a new Form W-4 and increase your withholding. The sooner in the year you submit this change to your employer, the sooner your new withholding will take effect on your paycheck. We can help you understand how to fill out a new Form W-4. Plus, our W-4 calculator is a great resource.
- If you owe the IRS money and cant pay, there are options. We can help you understand how you can pay back taxes if your tax bill is too much to pay right now. H& R Block specializes in helping taxpayers in this situation and our tax pros can explain the steps to take.
Why We Pay State Taxes
One common question is why do we pay taxes? State taxes are imposed for multiple reasons. People who have earnings and enough connection to the state will have to pay additional income taxes. This money is usually used in order to pay for social services like public housing, welfare, and Medicaid. Other than that, the money usually goes to hospitals, roads, as well as education, state police, and other such things.
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What Happens If I Miss The Tax Deadline
If you received an extension and fail to file your income taxes by midnight on Oct. 15, what happens next depends on your situation. If you are owed a refund, there is no penalty for filing late, though this may be different for your state taxes. But if you owe the IRS, penalties and interest start to accrue on any remaining unpaid tax due. There’s also a $330 failure-to-file penalty under the Taxpayer First Act of 2019.
In most states, taxpayers who are granted a federal extension to file automatically receive an equivalent extension to file their state income tax return.
An important note: If you are owed a refund or you filed for an extension through Oct. 15, you were supposed to pay your taxes by May 17. If you owe money, you would have been required to estimate the amount due and pay it with your Form 4868. If you did that, you should have automatically been granted an extension.
Another caveat: If you’re serving in the military — in a combat zone or a contingency operation in support of the armed forces — you may be granted additional time to file, according to the IRS.
Bottom line? It’s best to e-file or postmark your individual tax return as early as possible. CNET’s roundup of the best tax software for 2021 features an array of packages that can help you take care of business quickly and affordably.
Americans Are Facing A Long List Of Tax Changes For The 2021 Tax Year Smart Taxpayers Will Start Planning For Them Now
If you haven’t started already, it’s time to begin thinking about your 2021 tax return. After all, the more tax planning you do, the more money you may be able to save. However, proper tax planning requires an understanding of what’s new and changed from the previous year and there are plenty of tax law changes and updates for the 2021 tax year that smart taxpayers need to know about.
The Covid-relief bills signed into law last December and March include a number of provisions that could impact your 2021 tax return. Other 2021 tweaks are the result of new rules or annual inflation adjustments. But no matter how, when or why the changes were made, they can hurt or help your bottom line so you need to be ready for them. To help you out, we pulled together a list of the most important tax law changes and adjustments for 2021 . Use this information now so you can hold on to more of your hard-earned cash in April when it’s time to file your 2021 return.
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