Getting ready for the next tax season is an essential step to turn to before the upcoming year, look for the best ways to simplify this process by tips about tax preparation, changes in law and information about tax-preparation software and tax professionals.
Filing taxes is a very stressful thing which requires much attention, time, focus, and energy. According to the IRS, taxpayers spent 8.9 billion hours complying with federal income taxes in 2016. Another survey by Pew Research Center poll found that 72% of Americans think that the federal tax code is too complex. However, 34% of Americans liked or loved filing their taxes.
Business's tax return deadline depends on: what are state taxes, filing an extension, and weekend or federal holidays. In 2018, entity type tax due dates are:
- Original deadline for partnerships (Form 1065) and S Corporations (Form 1120S): March 15, 2018.
- Original deadline for C Corporations (Form 1120) and individuals (Form 1040): April 17, 2018.
- Original deadline for exempt organizations (Form 990): May 15, 2018.
- Final deadline for partnerships and S Corporations (with extension): September 17, 2018.
- Final deadline for C Corporations and individuals (with extension): October 15, 2018.
- Final deadline for exempt organizations (with extension): August 15, 2018
All these tax forms can be found here.
Tax season is coming soon. So, you need to prepare for this period. It takes time and includes the following steps:
- Gathering tax documents. The forms to complete can be mailed out. They can be also available electronically from the end of January.
- Estimation and paying tax owed. Look through your tax forms to check whether you owe any tax. Otherwise, you may have interest and penalties. April 18th is the date when penalties start accruing.
- IRA (individual retirement account) contributions information. Form 5498: IRA Contributions Information reports your IRA contributions to The Internal Revenue Service (IRS). Contribution limits are $5,500 or $6,500 if you are age 50 or older, for both traditional and Roth IRAs (a type of IRA that lets an investor save up to a certain amount of after-tax dollars each year. The earnings in the account grow tax-free, and distributions taken after age 59½ (if the account has been open at least 5 years) are exempt from taxes) combined. You can make IRA contributions online on website https://fidelity.com/. Here are the available types of them:
- You can sell a Fidelity mutual fund in a mutual fund account and use the cash amount to contribute to a mutual fund IRA and buy a mutual fund.
- You can sell a Fidelity mutual fund in a mutual fund account and contribute the cash amount to a brokerage IRA.
- You can use cash from a brokerage account to contribute to a mutual fund IRA and buy a Fidelity mutual fund.
- You can contribute cash from a brokerage account to a brokerage IRA.
- Filing for an extension. If there is a situation when you may miss a deadline for filing taxes or make mistakes because you're in a rush, you should request the extension. In order to get a 6-month extension, there are different forms:
- Partnerships, S Corporations, and C Corporations use Form 7004.
- Individuals use Form 4868.
- Nonprofit and charity organizations use Form 8868 to request a 3-month extension.
- Letting your Certified Public Accountant (CPA) know about major life changes to avoid an overpayment. Taxes are not static. Changes in your family or income situation impact your tax situation. When filing taxes, you have to inform about the following:
- Changes to your marital status.
- Having a baby, or claiming dependents - reduces your tax rates, gives access to the Child Tax Credit, tax benefits like credits for education to the Earned Income Tax Credit.
- Educational expenses - The American Opportunity Credit and the Lifetime Learning Credit can help offset $2,000 or more of your qualifying educational expenses. If you're paying off a student loan, you can deduct up to $2,500 of your interest on your taxes. The cost to obtain certain professional certifications or designations can also be written off on your taxes.
- Retirement contributions and distributions.
- Inheritance is tax-free.
- Starting or finishing (an expat assignment). Expats receive an automatic 2-month extension.
Tax season is hot time for most people. Sometimes, it is better and easier to consult with a tax professional to learn what are state taxes and to pay your tax liability on time. It is recommended to review tax preparation companies and find as much information about them as possible. Otherwise, you may come across non-professionals who may also be interested in how does taxes work? In the H&R Block tax service review, a person came across a deceitful way of doing business. He/she wrote:
"There was no introducing me to an Emerald Prepaid Mastercard and there was no explanation about how this H&R Emerald Prepaid Mastercard worked. (which I did not need) The employee there never explain to me about the Emerald Prepaid Mastercard, therefore, after she did my taxes she preceded to hand me a green card. I told the employee right then that I wanted cash for my refund and that I preferred that my refund check come from IRS."
As a result, the employee has been holding the refund from IRS hostage since April 18, 2017.
Another person in the Jackson Hewitt review shares the situation when he/she had submitted all the paperwork but the company's representative did not scan in all the forms to the IRS. The customer wrote:
"They did not even pay the interest fee penalty because we didn't sign up for the "Gold membership" and even if we did sign up they would only pay the penalty fee and not the debt that was owed!"
If your tax preparer acted improperly, you can report a complaint using the following methods:
- The way of a misconduct report depends on what you received: a notice, a letter, or received nothing:
- If you received a notice or a letter from the IRS, complete Tax Return Preparer Fraud or Misconduct Affidavit Form 14157-A and Complaint: Tax Return Preparer Form 14157. Mail the IRS with all supporting documentation and a copy of the notice or letter to the address contained in that notice or letter.
- If you did not receive a notice or a letter from the IRS, complete Tax Return Preparer Fraud or Misconduct Affidavit Form 14157-A and Complaint: Tax Return Preparer Form 14157. Mail them with all supporting documentation to the address where you would normally mail your Form 1040.
- If you suspect your identity was stolen, use Form 14039.
- If you want to report alleged tax law violations by an individual, a business, or both, use Form 3949-A. Submit to the address on the Form 3949-A.
While filing tax returns and gathering the necessary documentation, you should also think of how does taxes work including the following points:
- Itemized deductions or a standard deduction. Itemized deductions are claimed on Schedule A of Form 1040, which must be attached to your annual tax return. It is usually claimed in case of state and local taxes, gifts to charity, home loan interest, tax preparation fees, medical and dental expenses. A standart deduction is a fixed dollar amount, based on your filing status and age, that the IRS lets you take off (deduct) from your taxable income.
- Business expenses. Claim certain items as business expenses during the year and justify them to the IRS.
- Donations and dues as a tax deduction. Add receipts to your documentation and provide with the information on how much you have donated.
- Finance documents. Bank e-statements, credit card e-statements, retirement account information put in a tax folder.
Personal Finance Software
Financial software is aimed at simplifying tax operations. It allows people to file tax returns for themselves. The most commonly used are Quicken and TurboTax. They are mostly free (simple tax returns) and comprehensive. However, bad complaints arise. In this tax service review, a person thinks that such software is a joke. He/she wrote:
"I filed my taxes at turbo tax and paid 100 bucks for the best option and coverage and well you guessed it , they dropped the ball 1 spent 3 days 6 calls all over 1.5 hours only to be told to mail it in. This cost me the purchase of a house and at least 10 years off my life!!!"
The customer came across the system that worked badly. He needed help from customer's service which didn't help, just mailed.
The solutions of this issue may be:
- To read tax service reviews about software on a website like www.pissedconsumer.com.
- To try out a demo version and read properly all the details about the product.
- To use US Tax center that also provides e-file options. They are easy, affordable and secure.
Changes in Tax Laws
The Internal Revenue Service (IRS) has updated its tax code. According to it, people face some changes in the upcoming year among which are:
- Single filers in 2017 are entitled to a standard deduction of $6,350, with married couples who had to pay $12,700. For heads of household, the standard deduction this year is $9,350. In 2018, these levels are rising to $6,500 for a single filer, $13,000 for a married couple filing jointly, and $9,550 for the head of household.
- Phase-outs for the personal exemption increase to AGIs of $266,700 for single filers and $320,000 for married filing jointly, and they end completely at $389,200 for single filers and $442,500 for married filing jointly.
- Workers under age 50 will now be able to contribute up to $18,500 a year, instead of 18,000 a year.
- Single filers and the head of household can earn up to $63,000 (an increase of $1,000), with a phase-out between $63,000 and $73,000. Married couples will be able to earn up to $101,000 (an increase of $2,000), with a phase-out between $101,000 and $121,000.
- The income exemption threshold rises to $55,400, up from $54,300 in 2017 for single filers. Married couples filing jointly will see their income exemption rise to $86,200 in 2018 from $84,500 this year. The AMT begins to phase-out for single filers at $123,100 in 2018, and $164,100 for married couples.
Tax season is not a last-minute deal. Good tax preparation can make this process much easier and you can become one of the 34% of Americans who like this period. However, if you face any issues with companies you engage for this purpose, you should know if those qualify as financial complaints as we all as know how to submit them.
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While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal, medical, accounting, investment, or any other professional advice as individual situations will differ and should be discussed with an expert and/or lawyer.