Common Questions To Ask Your Tax Preparer and Key Tips In Filing Your Taxes
Annually, an estimated 85 million taxpayers are required to file and submit their tax returns. Among these taxpayers, some are just getting familiarized with the 2017 Tax Cuts and Jobs Act.
The exact date for accepting returns hasn’t been set yet but no matter when the tax season begins this 2022, it’s a smart move to be informed. Keeping track of the limits, standard deductions, and tax brackets may be a tedious task. A little planning like consulting a tax preparer to answer your tax questions will help you complete the process simply and quickly.
Here’s a review of the most important questions for you to ask your tax preparers in preparing for the next filing season:
1. What ways will help me reduce my tax bill?
Through deductions and credits, you can control your tax bill as provided by the tax code. Your taxable income and tax credits lessen your tax liability through deductions.
If you are a working taxpayer, your taxable income is reduced through a contribution. You may opt between an individual retirement account (IRA) or an employer-sponsored retirement plan. Another way is by availing of a health plan that will qualify for high deductions. Your employer may access these through a flexible spending account (FSA) or health savings account (HSA).
A child tax credit allows those who have dependents to avail of a partial credit refund. If you qualify for this, your tax goes down. In 2020, this credit was worth up to $2000. Preparing your 2021 tax return in 2022 will qualify you for the Child Tax Credit with an increased worth of $3000-$3600 per child. This policy is expanded by the American Rescue Plan and depends upon your child’s age.
2. What kind of deductions will I qualify for?
Employees have more options available when it comes to savings because contributions made to the IRAs, HSAs and FSAs qualify you for deductions when you prepare your Form 1040. These contributions will not be deducted from your tax return since those are already subtracted from your wages. Business owners or those who are self-employed also have more savings opportunities. A student loan interest may be deducted if you qualify their criteria in terms of income, mortgage, taxes, and others.
For freelancers, small business owners, and independent contractors, you may avail of deductions that include home, office, equipment, supplies, health insurance, utilities, and more. Most taxpayers qualify for deductions whether standard or itemized ones.
3. How do marginal and effective tax rates differ?
The tax system in America called the progressive tax system follows the principle of the higher your income is, the higher is its marginal tax bracket. In 2020 and 2021, there were seven marginal tax brackets in the US. A marginal tax rate is the tax rate of the tax bracket where your last taxed dollar is classified.
For a simplified calculation of your effective tax rate, identify your taxable income and calculate how much is your total tax bill. Then, divide the total tax by your taxable income. The result is your effective tax rate which represents how much is the total percentage of your taxable income is.
4. Which is more preferable: a tax credit or a tax deduction?
A tax credit is more recommended than a tax deduction because it lessens your tax liability. A taxable income is expected to get lower with tax deductions.
5. Will medical expenses be deducted?
If you have expenses that were not reimbursed for medical expenses and are more than 7.5 percent of your income, the IRS allows deductions yearly. Of course, your deductions will depend on how much your income is and whether these deductions are itemized or not. Medical expenses like preventative care, medical treatment, surgeries, prescriptions, mental health care, and even travel expenses incurred while these medical treatments are allowed.
6. Which is better: itemize or claim the standard deduction?
When the tax reform in 2018 was passed, it became a lot easier to decide whether you should itemize or claim the standard deduction. In 2017, when Tax Cuts and Jobs Act was passed, you don’t have to itemize the standard deduction anymore if it allows you to save more in your tax bill.
Key Tips in Filing Your Tax
Whatever your financial status is, filing next season will be a lot more straightforward with these important takeaways:
1. Choose who will prepare and file your taxes
If you don’t have a tax preparer yet, inquire from advisors or friends to find one especially if you just got married, had a recent divorce, started a business, or had major changes in your life that will affect the complexity of your taxes.
It’s a wise move to act on this earlier because tax professionals charge more when the deadline for filing taxes draws nearer. Always inquire about charge fees and stay away from tax preparers who get a chunk out of your refund.
2. Set an appointment
Don’t wait too long to schedule an appointment with your preparer. If you cram up when the deadline closes in, you lose opportunities to reduce tax bills like making contributions that will be deductible from your health savings or individual retirement account
3. Prepare your documents
The most common documents you need to secure are:
– Form W-2 if you are employed
– Form 1098 for mortgage interest
– other 1099 forms (Form 1099-DIV, Form 1099-INT, Form 1099- MISC, and Form 1099- B)
Don’t forget to check if the information entered in the forms is correct and that each information in one form coincides with the information in the others. Necessary tax documents are from your employer, banks, and other institutions which you have done business with.
4. List your personal information
This may sound basic. Surely you know your social security number but if you have dependents, chances are you don’t memorize each one’s security number. Properties and the dates you bought or sold it, the cost, and other information must be jotted down so it makes a ready reference for your tax preparer should this information be needed.
5. Secure a copy of the previous year's return
If you have the same preparer last filing, it’s easy to retrieve your previous filing information. If you seek the help of a new preparer, secure a copy of your past filing information to discourage missing out on important items like:
– interest and dividends: the previous filing indicates all the financial institutions who provided you 1099 forms
-donation deductions: check the organizations you donated to last year if they are the same ones you donated to this year. These gifts or charitable contributions you made are deductible as long as you have a receipt.
How can Essential Tax Solutions help me keep abreast with tax laws and changes in rules?
We understand that staying updated with an influx of information updates is a challenge. But don’t let the struggle get real because Essential Tax Solutions is equipped with the recent pulse of what’s new and what’s not in tax changes. Staying informed and updated is our priority so clients stay feeling confident in filing with our team.
Let us do everything for you with our one-on-one, tailored-for-your-needs approach as you file your taxes from beginning to end.