It’s the start of every American’s favorite time of year to hate: tax season. The IRS will begin accepting tax returns for the 2022 tax year on January 24.the. Here are three of the biggest mistakes people make when filing taxes.
1) Missing out on last minute tax savings opportunities.
While it’s too late to influence most of the factors that will determine your 2022 tax liability, there are still a few things you can do before April 18.the tax filing deadline. One is to contribute up to $6,000 (or $7,000 if you turned 50 or older last year) to an IRA. If you do not have a retirement plan for work or do but meet the income limits, you can deduct your contributions to a Traditional IRA, which can be invested to grow tax-deferred until you retire. There is a 10% penalty for withdrawals before age 59 1/2, but exceptions include qualified education expenses and up to $10,000 per lifetime for a first-time home purchase.
Another type of IRA that you can choose is a Roth IRA. Contributions are not deductible, but earnings can be withdrawn tax-free after 5 and 59½ years. Unlike a traditional IRA, you can also withdraw the amount of your contributions (but not earnings) at any time without tax or penalty. If your income is too tall To contribute to a Roth IRA, you can make a Roth IRA “back door” contributing to a traditional IRA and then converting it to a Roth IRA.
Finally, if you have a high-deductible health insurance plan, another way to reduce your current and future taxes is to contribute to an HSA (up to $3,650 for individuals and $7,300 for families with an additional $1,000 if you’ve turned 55). years or more last year). Like a traditional IRA, contributions are tax deductible, but withdrawals are also tax free if used for qualified health care expenses. You can also use it for non-medical expenses without the normal 20% penalty starting at age 65 (although it will be taxable when used for non-medical expenses).
2) Waiting to present.
There are several reasons why taxes are not something to put off until the last minute. First, you never know when your tax return may end up being more complicated than you thought. You may need additional paperwork or other information or even need to switch from using software to hire a professional tax preparer. In that case, you’ll need time to find the right person rather than the one who’s available during the busiest time of tax season.
Second, the only thing worse than owing a large sum to the IRS is finding out just before the payment deadline that you can’t make the payment. Then you will be subject to interest and penalties as well. By filing your return early, you’ll have more time to save or find the cash to pay your tax bill.
If you do get a refund, filing sooner allows you to get your money back sooner and put it to work for you. Often, you also need a tax return if you are applying for a mortgage or have a child applying for financial aid. Doing it early gives you a head start on filling out those forms too.
Finally, one of the most common forms of identity theft is for someone to file a tax return in your name and keep the refund, leaving you stuck explaining to the IRS why everything on your return is wrong. Unlike other forms of identity theft, this cannot be prevented with a security freeze and it will not appear on the credit check because there is no credit involved. One way to avoid this is to file your return before someone else can file it for you.
3) Choosing the wrong person to file your taxes.
With a host of tax software, doing your own taxes is easier than ever. If your adjusted gross income is $73,000 or less, you may even qualify for free filing software here. Just keep in mind that these free options only cover very basic returns.
If you don’t qualify, you can still access Free fillable tax forms. However, they only do the math and offer only basic guidance, so you must be able and willing to do your taxes yourself. Also, all of his information is eventually deleted, so he won’t have access to it in the future unless he saves it somewhere else.
In any case, doing your own taxes is not the best option for everyone. If you own a business or investment real estate, ambiguities in the tax code can make it difficult to determine what income is taxable and what expenses are deductible. Living or working in multiple states or countries, buying and selling investments in taxable accounts, or being a non-US citizen can make your taxes more complex and time consuming. These are all cases where a tax professional might make sense.
However, hiring a preparer is often more expensive than doing it yourself. In 2021, the National Society of Accountants found the average cost was $220 for a 1040 and a state return without itemized deductions, $323 for a 1040 with itemized deductions (Schedule A) and a state return, and $778 for a business owner with capital gains and/or losses and rental income and/or losses. Compare that to software programs that typically cost $80 or less for federal and state filing.
For a simple return, your local H&R Block
Finally, if you need to do a business statement, you may want to hire a Certified Public Accountant (CPA) who specializes in tax preparation. Keep in mind that their fees tend to be the highest of preparers, so it could be excessive for an individual income tax return. If you’re also looking for more comprehensive financial planning, consider a CPA who is also a Personal Finance Specialist (PFS).
Of course, there are a host of other tax-filing mistakes to avoid, like being disorganized or making miscalculations, but here are three that can really cost you. Try to take advantage of the remaining tax-saving opportunities, start early, and choose the right person to prepare your taxes. So maybe tax season doesn’t seem so taxing.
Leave a Reply