Tax Season is here! Are you ready?
Many people find taxes intimidating, but they don’t have to be! In fact, there are many resources available to help you understand the tax process.
You can start by researching the tax laws in the United States and Massachusetts, and familiarizing yourself with any deductions and credits available to you. You can also find helpful tax tips and advice on the internet (even on social media! «insert shameless plug for my Instagram here»), or consult with a professional tax advisor or accountant.
Staying organized and keeping good records can also help you get the most out of your tax returns. With a bit of research and a trusted professional (hint: me, hehe) helping you out, you can learn to feel more confident when it comes to understanding taxes.
Crash Course in Tax Return Basics
Taxes are one of the most important aspects of financial planning. It is important to understand the basics of taxes in order to ensure that you are paying the right amount of taxes and that you are taking advantage of any available tax deductions or credits (don’t let the government take your hard earned money if you don’t have to!). To start – here’s a crash course in some key tax phrases:
- Taxable Income: This is the amount of money you earn in a year that is subject to taxation. This includes wages, salaries, tips, bonuses, and any other income you receive, such as money earned from a business you own.
- Tax Brackets: Depending on your taxable income, you may fall into different tax brackets with different tax rates. It is important to understand the different tax rates so that you can accurately calculate your expected tax burden (aka how much you end up paying in taxes).
- Deductions and Credits: Deductions and credits are two important tools to reduce your tax burden. Deductions allow you to subtract certain expenses from your taxable income, thus reducing the amount of income subject to tax. Credits can reduce your income tax liability dollar-for-dollar (hot tip: this means tax credits are often worth more than tax deductions).
- Filing Status: Filing status is important because it affects your taxable income, as well as your eligibility for certain deductions and credits. The most common filing statuses are single, married filing jointly, and head of household.
- Tax Returns: Tax returns are the forms you must file with the IRS in order to report your income and claim any deductions or credits. Different types of tax returns are available depending on your filing status and other factors. The most common ones that you’ll hear me talk about are Form 1040 (this is your personal return!), Form 1065 (if two or more people go into business together as partners, this is the form they have to file), and Form 1120-S (this is the form for S corporations – that’s a whole other can of worms that I’ll save for a future blog post!).
Getting Ready to File Your Tax Return
I know, I know… filing taxes can be a real pain. It’s super time consuming and sometimes super complicated too. Here are some tips to help make the process a bit easier:
- Gather your documents. Make sure you have all the documents you will need to file your taxes, including your W-2s, 1099s, and other income documents.
- Organize said documents. Keep all of your tax documents in one place and organize them by type to make filing easier.
- Research deductions. Take time to research which tax deductions you may be eligible for (check the links in the first paragraph of this article for a starting point), as this may help you save money.
- Double check your information. Make sure you double check all of your information before you file your taxes. Check for any spelling mistakes or incorrect information. One of the quickest ways to get red flagged for an audit is by having documented information incorrect (eep!).
- File early. Try to file your taxes early, as this may help you avoid any potential problems (Have you ever had to call the IRS the week before taxes are due? I really don’t recommend it).
- Use electronic filing. Consider using electronic filing, as this may help speed up the process, and make filing easier (If you use a tax professional, they will most likely e-file your return!).
- Prepare for next year. For better or worse, taxes never stop. Once you have filed for the current year, you should start preparing for the following year. Start filing your documents away and researching deductions, so that you’re ready when the time comes to file again (let your inner Type-A freak flag fly and thank yourself later).
When in doubt, ask for help!
Taxes can be complex and this isn’t the time to “just hope for the best”. It’s important to understand your return in order to ensure that you are paying the correct amount of taxes (no, the IRS isn’t going to send you to jail if you accidentally get it wrong. Seriously – I promise. But you could end up owing even more money in penalties and interest and ain’t nobody got time for that).
If you need additional help, consider speaking with a qualified tax professional. Working with a professional is definitely the best option if you have a more complicated financial situation, such as possessing significant investment accounts, experiencing a major life event, or owning your own business. They will be able to help you make sure you’re complying with all the necessary laws and keep you from overpaying in taxes.
Furthermore, they can also offer helpful tips and advice on how to maximize your tax deductions and credits to help you save more money. Taking the time to ask for help and making sure everything is done right could save you a lot of time and money in the long run.
Have more questions??
I am here to help however we can. And believe it or not, I actually like talking about taxes, so please feel free to ask me any questions you have. I’ll do my best to provide helpful and informative answers. 🙂 You can contact me through my website at christytaylorcpa.com.