It might be tough to submit your income tax return. However, while you take advantage of money-saving opportunities, you may do it step by step—and avoid common mistakes.
1. Keep an eye on your earnings.
You must submit a tax return if your income reaches or exceeds specific criteria during the year. If you work, check your pay stub for “year to date” income—and, if you have more than one job, total up all of your earnings from all of your employers.
Remember to include non-residence-related income, such as money you make on the property or anything you sell, as well as funds from your investments or interest.
2. All year, keep the appropriate paperwork.
During the year, stay on top of tax-related paperwork to make your life easier during tax time. You could want to keep receipts for items like charitable donations, work-related costs, and medical expenses from step 4. You may also want to save statements from student loans or investments as well as any grants or fellowships you’ve received.
It may be easier to determine whether or not to itemize if you have these on hand. You should also save your papers after filing, and the IRS suggests keeping records for at least three years following the tax year they were filed.
3. Keep an eye out for your earnings paperwork to arrive.
In January or February, you should get a questionnaire from the IRS asking about your earnings from employers and other income sources. You will receive a Form W-2, which includes details on how much money you made, as well as any taxes withheld if you are a full-time employee. If you work as a freelancer or contract, you may receive a 1099-NEC form with details about your earnings.
You may also get statements showing dividends or interest generated from investments (Forms 1099-DIV and 1099-INT, for example), as well as the student loan interest you’ve paid (Form 1098-E).
Suppose you’re a university student (or have a dependent). In that case, you’ll get a Form 1098-T that details how much tuition you paid as well as any scholarships or fellowships received, allowing you to compute education deductions and credits.
4. Find out which credits and deductions are available to you.
Getting a feel for which credits and deductions you may qualify for can assist you in gathering the proper documents. Here are a few to consider:
Saver’s credit. If you are not a full-time student and aren’t being claimed as a dependent, you may be eligible for a tax credit if you contribute to a retirement plan. Your tax filing status and adjusted gross income determine the amount of the credit.
If your adjusted gross income is less than $33,000 for the 2021 tax year and you’re single, you may be eligible. You might qualify if your adjusted gross income is $66,000 or less if you are married and file jointly. These figures, on the other hand, are subject to change in future years.
You can deduct up to $2,500 in student loan interest on your taxes if you itemize. Depending on your modified adjusted gross income, you may be eligible for as much as $2,500 in interest deductions.
Charitable deductions. Are you able to deduct your contributions to your alma mater or a favorite charity? If you itemize your taxes, you can usually deduct these donations.
Freelancing costs. If you work for yourself, you may deduct expenses for industry publications and office supplies.
Check the IRS website if you believe you may be eligible for extra credits or deductions.
5. Remember to keep track of your deadlines.
If you have your tax documents in January or February, you have approximately two months to prepare your return by the April 15 deadline. Make a date for when you’ll begin working on your return and make sure it’s early enough that you can schedule another session or two if necessary.
In general, tax experts advise that you submit your returns as soon as possible. The sooner you file, the more likely you will avoid tax-related identity theft, which is on the rise. You will also receive your money back faster if you are due a refund.
6. Decide how to submit your tax return.
There are several methods to prepare and submit your tax return. Learn about each so you can choose the best option for you:
“Free File”: If your adjusted gross income is less than a certain amount, the IRS offers free tax preparation software that can make preparing your tax return simpler by including features to assist you in determining any deductions or credits you may be eligible for.
IRS online forms: If your adjusted gross income is greater than the amount shown on Form 1040, you may use IRS e-forms to compute your tax liability. They only provide basic assistance and won’t give you the same level of help understanding which deductions or credits you may be eligible to claim.
Tax preparation software: If you want further assistance, you may pay a fee to use these web tools provided by numerous businesses. They’ll guide you through how to complete your tax return and determine any deductions or credits you might be entitled to.
Tax preparer: If you realize that you require one-on-one assistance from a specialist, you may visit a tax preparation company or an accountant. Make sure you work with someone you can trust. Working with a tax professional is essential because you will be providing this person access to a lot of personal information. The IRS maintains a list of verified tax preparers that may assist you in locating one in your region. While this isn’t an assurance of their honesty, it’s an excellent place to start.
Taxes are complicated. It might be difficult to submit your income tax return, but there’s a lot of help out there and it doesn’t have to feel overwhelming.
There are also common mistakes that many taxpayers make (like forgetting their social security number) which could cause major headaches when they try to file their taxes in April!
If this all sounds daunting and if you want some professional assistance, please contact The Oasis Firm today. Our team is ready to partner with you on getting your tax filings done right.