First Time Working Through Taxes? Follow These Steps
If you’ve never filed taxes in the US before, the process can be daunting. It is a lengthy, complex, and detailed process that requires patience and care. However, if you take the time to file your taxes appropriately, you can receive significant tax deductions and end up earning substantial money back on your refund. That money can serve as a financial springboard, kickstarting your small business ownership or investing career. You just need to take the correct first steps.
First Thing’s First: Make Sure You File
There is almost no excuse to forget to file your taxes. In the months leading up to the tax deadline, the news cycle in the US is dominated by tax talk, your friends and coworkers will likely be discussing it, and you should be receiving several tax-related documents in the mail. Use apps to enhance your memory if you have to, just do not forget.
The IRS is notoriously hard on people who have filed late or incorrectly and the failure-to-file penalty is steep. The government agency will charge you .5 percent of your total taxes owed each month, up to 25%. This can be seriously crippling. Avoid it at all costs.
Organize Your Tax Documents
In the months leading up to Tax Day, you should receive tax documents from your employers in the mail. If you work for a single employer year-round, you may only receive one document. If, like an increasingly large percentage of the population, you work as a freelancer and have filed 1099 forms with multiple employers, then you can expect several more.
While it may seem prudent to file early as possible, in the case of freelancers this can actually backfire. If an employer does not send you the required tax documents in time, it’s likely that you will submit an incomplete report.
Employers are required to send out statements by January 31st, but not all employers are perfect. In this situation, the IRS might send a letter informing you that you owe more money, or, even worse, they may audit you.
Chose the Correct Filing Status
If you file the incorrect filing status, you can potentially miss out on a lot of money. For example, if you file as “single” but you also care for a dependent child, you could be saving thousands of dollars by filing as the “head-of-household.”
Taking time to carefully consider which filing status is appropriate for you is one of the best ways to ensure that you save as much money as you possibly can.
Report Your Entire Income
It may be tempting to avoid reporting jobs that paid in cash. However, this can backfire in multiple ways. To begin, it can result in serious penalties which can potentially put you debt. In the worst-case-scenario, it can result in an audit, wherein you will be forced to admit that you failed to report all of your earnings.
However, if you do report earnings, you can earn additional money back on your return. Say you helped deliver products for a friends’ successful business. If you file the cash you earned from that job, you would be able to deduct gasoline costs, miles driven, and all other business-related expenditures.
Avoid Clerical Errors
Filing your return may feel tedious, but if you rush through all of the “housekeeping” sections, you may make a mistake that makes it difficult for the IRS to send you a refund. If you make enough mistakes, they may reject your return completely. Spell your name correctly, enter your SSN correctly, and accurately report all of your income sources and amounts earned.
Filing taxes in the United States is famously challenging, but if millions of other Americans can successfully file a return, so can you. If you run a business, make sure you take the time to submit all of the appropriate deductions, take your time entering the clerical data, and enjoy your refund. You earned it.