You have to file your taxes once every year, but managing your taxes is a year-round task. Whether you hire someone to do it for you or do it yourself, you must know your obligations and how a few mistakes can cost you at the day end.
Here are a few things every taxpayer must know when filing returns.
You might not need to file a tax return for federal income
Not everyone who earns income during a calendar year needs to file returns for federal income. Several factors determine whether you need to file federal returns, including how much money you earned – and your source income – plus your age and filing status. For most eligible taxpayers, a quick rule of thumb is determining the standard deduction and adding it to the personal exemption.
Even if you’re not filing federal tax returns, you might want to benefit from tax credits and tax breaks
Tax credits refer to the dollar-to-dollar reductions in the tax due, and they’re normally better than your tax deductions that only reduce the taxable income you earn. And sometimes, you can even get money from credits even when you don’t owe tax under the AOC or American Opportunity Credit. If a person is in school, they may claim AOC for expenses like fees and tuition.
If the person is self-employed, they may need to make estimated payments
If the person is employed, the employer would withhold their taxes from their paycheck and turn over these taxes to IRS or Internal Revenue Service on behalf of the employee as they get paid: at year-end, the person is at either break even, or owe more, or is owed some refund, depending on their financial situation.
However, if they don’t have an employer or they receive their income without the federal income tax withheld, the Internal Revenue Service expects them to pay if they owe over $1,000 on the Tax Day.
This also applies to freelancers, landlords, business partners, taxpayers with investments – and almost anyone who receives a 1099 form. To pay out estimated payments, one needs to use the federal 1040ES form. These payments need to be made quarterly, and late payments might be subjected to a penalty.
At 3Alpha LLC, our experienced tax consultants are well-trained in tax regulations and can expedite the timely tax preparations. It takes an attentive eye to manage your accounts such that your tax returns are filed correctly without any discrepancies.