Those who don't have experience in the arena often turn to a tax preparer or attorney well-versed in for advice, but some questions are more common than others. Check to see if the answer you're looking for is on this list:
1. Is it better to file early or in April?
The Internal Revenue Service started accepting tax returns January 23 and will continue to do so until April 18, but when is the best time to actually file them?
Samantha Vient, a LearnVest certified financial planner, told Forbes that while there's no perfect date, earlier is certainly better than later. Many people file as soon as they can to get their refund as quickly as possible. On the other hand, some wait until the final second—Vient highly suggested avoiding this practice. Should you bring your taxes to a preparer in the last two weeks before the deadline, they'll likely charge a premium for their service.
Additionally, that leaves you very little room if you find that you are missing a necessary document or piece of information. If that happens, you can file for an automatic 6-month extension, which will push your filing date back to October, but your anticipated tax payment must be paid with the extension and failure to do so will result in penalty and interest.
2. Who can I claim as a dependent?
Dependent deductions can really make a difference in the long run, so you should be sure you're covering all your bases here.
Children younger than 19 years old, or 24 years old and classified as a student, can be counted as a dependent, the IRS reported. Also, there is no age limit for disabled children. Furthermore, some filers may be able to receive an exemption for a qualifying relative. This would be an elderly parent you're taking care of or a family member that's been staying with you and for whom you're paying over 50% of their yearly support, according to U.S. News & World Report.
3. Do I need to file taxes if I don't make a lot?
Did you know the average unclaimed tax refund is around $600?
U.S. News & World Report pointed out that people often forego paying taxes because they don't meet the IRS-required threshold to file, which is $10,000 for individuals and $20,000 for those who are joint-filing. But, it's recommended to file even if you don't meet that income level because you may qualify for certain tax credits and it's likely you'll still receive a refund.
4. I receive social security benefits, are they taxable?
If you've just entered retirement then you might feel overwhelmed about the changes to your income status, but it's pretty clear-cut.
In short, the IRS reported that retirement, survivor and disability income can be taxable depending on your total income and benefits from all sources for the year, but supplemental security income is not taxable. You'll want to report the total amount in box 5 on form SSA-1099. Then, you'll want to report the taxable income on form 1040 or 1040A in line 20b or 14b, respectively. This bracket starts at $25,000 per year for single filers, and $32,000 for joint.
5. What receipts should I be saving?
People often save receipts throughout the year in the hopes of itemizing them for deduction, but unless you're giving generously to charity, you have significant medical expenses that exceed 10% of your yearly gross income, or you pay interest on a mortgage for your personal residence, you likely won't have enough expenses to make itemizing your deductions worthwhile.
Oftentimes, the standard deduction will outweigh any itemized deductions, according to Forbes. The Motley Fool reported this is $6,350 for single filers and $12,700 for joint filers. However, if you do have a home mortgage, are chronically ill, or if you do give heartily to charities, be sure to save those receipts and statements for your tax preparer.
6. I made a mistake filing my taxes, what do I do?
Humans make mistakes and don't think you're the first person to ever realize after you've filed your taxes that you left something out.
Thankfully, IRS professionals are always checking your math, so you may not have to worry about changing anything if your calculations were off. But, if you forgot to report income or receive tax credits, you can fill out form 1040X to fix anything up to three years later, according to the IRS. Be sure to include any information regarding what is being changed, and expect to wait up to 16 weeks to see any results.
7. I'm short on funds and can't pay the IRS, should I avoid filing?
There are times where people haven't budgeted as well as they should have and may find themselves unable to pay the IRS if they aren't eligible for a refund. Don't worry, there are relief options available.
Forbes recommended using a credit card to pay off smaller amounts and reaching out to the IRS to ask for financial relief for the larger ones. Ultimately, installment plans with the IRS are always an option and you can also take out a loan from a lender. With budgetary cuts slated for the agency, the chances you'll be audited if you make less than a couple of hundred thousand dollars is low, but you still want to file to avoid any legal trouble.
This can be a stressful season for everyone. Therefore, if you have any questions or if you would like to discuss the matter further, please contact me, , at 201-806-3364.