Finance

Tax Filing, What I Need To Know for 2021

Tax filing in the U.S. is done annually. A tax return reports income, expenses, and other relevant tax information. It allows you to calculate your tax liability, schedule tax payments, and request refunds incase of overpayments of taxes. Filing taxes correctly can help you avoid costly mistakes and take advantage of money-saving opportunities. Many people struggle to file their taxes and upwards of 80 million taxpayers in the U.S. have their taxes filed by paid professionals.  

Tax Forms

Employees with regular jobs receive a Form W-2 from their employer at the close of the tax year. The form details the employee’s income and the amount withheld by the employer to pay for taxes. This information is used in the tax returns to calculate how much the employee owes in taxes or is owed in refunds. The self-employed and independent contractors detail their tax information on Form 1099. Form 1099 is also issued by investment firms and banks for detailing interest income.  

The Sections of a Tax Return

Tax returns generally have three major sections. These are: 

  • Income

The income section reports all income sources, including wages, self-employment income, dividends, royalties, and capital gains.

  • Deductions

Tax deductions reduce taxable income. Taxpayers may use the standard deduction or itemize deductions for their filing status. Tax preparation services like taxfyl.com, make the process easier for you. Deductions vary considerably among jurisdictions. Personal deductions include alimony paid, contributions to retirement savings plans, and interest deductions on some loans. Business deductions include most expenses directly related to business operations.

  • Tax Credits 

Tax credits offset tax liabilities by coming directly off the tax you owe the IRS. Several tax credits are provided for by the Internal Revenue Code. They range from the earned income tax credit to the child tax credit for your child dependents. Tax credits are designed to provide refunds to taxpayers with low-income and those with families and children. 

Filing a Tax Return

Options for filing your tax return include:  

  • Free File: “Free File” allow taxpayers whose income is less than a certain limit to prepare and file their taxes electronically for free. Its features help taxpayers determine deductions or credits entitled to them. 
  • IRS online forms: Instead of manually completing form 1040, you can fill the paper forms’ electronic version. E-forms offer basic guidance to help you in the filing.  
  • Tax Preparation Software: The IRS recommends tax preparation software for accuracy. Several reliable providers offer this tool. For a fee, the software will guide you in preparing and filing your tax return.
  • Tax Preparer: For professional help filing your returns, contract an accountant or a tax preparation firm’s services. Make sure you choose a trustworthy tax professional with a Preparer Tax Identification Number (PTIN) by checking the IRS directory of verified tax preparers.

Final Thoughts 

Whether you choose to file your taxes or hire help from a professional preparers like taxfyl you have to prepare adequately to avoid costly mistakes. Start by saving all your tax-related paperwork for the tax year, including relevant receipts and income documents. Secondly, get a sense of the deductions and credits you are eligible for and prepare the supporting documentation. Finally, begin your filing process as early as possible to avoid a last-minute rush. If you feel that you need more time to file your returns, you can request an extension early enough to avoid interest and penalties.