What better way to celebrate Financial Planning Month than to focus on your financial health by implementing some helpful tips for October and beyond. Get a Head Start on Your Giving This Season If there are things you or your business have in excess or aren’t using, you can turn that excess into charitable donations. Not only is your generosity going to help those who need it, but if you donate to a 501(c)(3), you can often deduct at least part of the items’ worth on your taxes. The holiday season is just around the corner, and what better time to do a big inventory check of personal items like clothing, home furnishing, office supplies, and other equipment that many others may need in the new year. And the Tax Cuts and Jobs Act in 2020 also raised the standard deduction for charitable giving to $12,400 for individuals and $24,800 for married couples. Take Advantage of All the Ways You Can Reduce Income Tax Reducing your taxable income is a great way to decrease your tax responsibilities, but many of the ways in which you can reduce it can also help set you up for financial success in the future. Retirement accounts and plans are essential to your financial health as you transition away from the workplace. And that transition is much easier when you have spent your whole working life contributing to your retirement. 401(k), 403(b), and traditional IRA accounts all offer different avenues toward a relaxing future. So why not increase your contribution as we head into the end of the tax year 2021? Health savings accounts (HSAs) give you a multitude of tax benefits, including tax-deductible contributions, tax-free earnings, and tax-free withdrawals. Flexible Spending Accounts (FSAs) offer similar benefits to HSAs. Allocating some of your money here can help you two-fold: you can prepare for the inevitable health expenses while also foregoing taxes. If you are interested in continuing your education, 529 plans are a great choice. With one, you …
FAQs About 1098s
There are lots of different 1098s and we wanted to help you better understand them, so we’ve put together this guide of eFile360 resources and FAQs to help you grow your understanding. 1098s: The Basics 1098s are used when you are preparing your federal income taxes, and they describe the financial transactions you or your business made during a calendar year that could affect the filing of your tax return. There are seven different types of 1098 forms: 1098, 1098-E, 1098-T, 1098-C, 1098-F, 1098-MA, and 1098-Q. The most commonly used include the 1098, 1098-T, and 1098-C. For a complete list of these forms and a description of what each form is for, you can read our eFile360 blog article on that topic. To find out which forms efile360 can help you with, check out our supported forms page! How Do I Fill Out Form 1098? When you are filling out and filing your 1098s, you want to be sure you or the tax preparer you have chosen to assist you follows the IRS instructions, which you can find here. Will I Get Two 1098 Forms if I Refinance? Generally, you should expect to receive a single 1098 form per property per year. However, if you have refinanced any of your properties within the current tax year, you will receive two 1098s to reflect the changes instituted before and after the refinance. Filing Form 1098 allows you to report and deduct mortgage insurance premiums from your taxes every year. What Are Some Reasons I Would or Wouldn’t Receive a 1098-T? The 1098-T is issued by colleges and other educational institutions and is used to report how much a student (or their parents) paid in qualified tuition and expenses during the tax year. If you pay interest on student loans, you should get a 1098-T unless any of the following are true: A course you took did not offer academic credit You are a nonresident alien Your school waived your tuition or expenses, or they were fully covered by scholarships Or an employer or government agency …
What to Do If Your 1099s Have Errors
Changes to Form 1099-MISC and 1099-NEC in the tax year 2020 mean you should be extra vigilant in your filing of these forms to prevent errors. But what happens if your 1099s have errors? Let’s talk about it. Wrong Form One of the first major errors you can encounter is the use of the wrong form. With the updates regarding 1099-MISC and 1099-NEC, it’s very easy to flip-flop these forms and fill them out incorrectly. The Balance Small Business uses the example that you have to use the 1099-NEC for attorney fee payments, but you’ll report gross proceeds to attorneys from lawsuits using the 1099-MISC. If you use the wrong form, be sure to double-check the instructions and let your tax service know, or – if you are doing the filing yourself – prepare and file the red Copy A with the IRS. Filling in the Wrong Box Sometimes, it’s not the form that is wrong, it’s the box you used incorrectly. Some examples include rent, which is found on box 1 and which will be shown on a 1040 Schedule E, or “other income” (which in and of itself is tricky to understand) which can be found on a 1040 Schedule C or other 1040 form. The IRS treats different income types very differently, depending on what boxes you choose to use. For 1099-MISC and 1099-NEC, be sure you have thoroughly read the instructions from the IRS before you begin inputting your information on the final forms. Name and TIN Errors If you made a mistake regarding your name, taxpayer identification number (TIN), or both, you will not need to file a corrected 1099. Instead, you will need to write a letter to the IRS with the following information included: Name and address Type of error, Tax year TIN Transmitter Control Code Type of return Number of payees Filing method Whether federal income tax was held The letter must be mailed to: Internal Revenue Service Information Returns Branch 230 Murall Drive, Mail Stop 4360 Kearneysville, WV 25430 Filing Corrected 1099s If …
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Tips for Minimizing Your Taxes
We all do it – we arrive at a deadline and wish we hadn’t procrastinated until the last minute – and your taxes are no different. Here are some year-round tips for minimizing your taxes. Learn Which Life Events Affect Taxes – and How While you probably aren’t thinking of it at the time, most major life events also come with tax changes. If you get married, divorced, have a child or adopt one, or experience other big changes this year, your taxes will be affected. Take the time to do some research beforehand. Knowing how your big life events will affect your taxes can help you start planning for those changes earlier, which only makes it easier for you and your family in the long run. Use the IRS Tax Withholding Estimator If you want to get way ahead of the curve, you can use the IRS’s free Tax Withholding Estimator tool. Having an accurate estimate of your withholding can do a few things. It can help you catch paycheck withholding errors quickly, and it can also ensure that you are not withholding too little tax, and thus creating a large tax bill for yourself next year. Reduce Gross Income Subject to Taxes Investopedia recently shared three moves to help reduce your taxable income and cut your taxes: Increase retirement contributions: one of the easiest ways to reduce taxable income is to increase your contributions to an employer-sponsored retirement plan or an individually held traditional IRA. Recently, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 states that for 2020 and beyond, the age restriction of 70 ½ years has been lifted, allowing seniors to contribute to IRA accounts indefinitely. Increase your contribution (or start contributing to Roth 401(k) or Roth 403(b): These employer-sponsored plan contributions are made through your paycheck, and while they don’t provide up-front tax benefits, they do allow for tax-free withdrawals later. Profit from your losses: On the individual level, losses on …
Tax Pro Tips for the Self-Employed
Worried you aren’t taking advantage of all the tax benefits for self-employed individuals? Here are some tax pro tips for you! Home Office & Business-Related Deductions Home office deductions are some of the most talked-about and least understood pro tips for the self-employed. The quick description of the home office deduction is this: the cost of any workspace you use exclusively for your business – even if it’s a closet in your home or a bedroom-turned-craft-or-recording-studio – can be deducted as a home office expense. And this applies to more than just the desk or computer you use. Let’s say, for example, the space you are using occupies 12% of your home. That means you can deduct 12% of the following expenses: Business percentage of deductible mortgage interest Home depreciation Utilities Homeowners insurance Annual Repairs You can also deduct the following business expenses: phone, fax, and internet. Essentially, if you can show that an expense was incurred while you were doing business (charge for a long-distance phone call, the monthly or yearly costs of owning and operating your website), it is, more often than not, deductible. Bonus: did you know you can also deduct the cost of specialized magazines, journals, and books that are directly related to your business? Here’s some more information on that. Retirement Planning Several retirement plan contributions are also tax-deductible. Contributions to SEP-IRAs, SIMPLE IRAs, and solo 401(k)s are included in this. For the 2020 and 2021 tax years, you can contribute up to $19,500 (or $26,000, with the catch-up contribution, if you're 50 or older) in deferred salary. Mileage & Business Trip Expenses When you use your car for business, your mileage for those trips is tax-deductible. For 2021, the standard mileage rate is 56 cents per mile. Using the standard mileage rate is easiest. However, after the first year of you using that vehicle for business, you can use the …
Why You Should Hire a Tax Pro
On the fence about hiring a tax professional, buying tax prep software, or just filing taxes yourself? Let’s compare them! Pros and Cons of Tax Prep Software Tax preparation software is a great way to do your own taxes in a way that offers subtle guidance. So let’s talk about the pros and cons. The pros: tax software is affordable, speedy, and (if you got a good one) easy to use. Purchasing software will always cost less than hiring a real-life CPA or another tax pro. And this price is tailored to your tax needs. If you have an easy return, without lots of property dependents, and business accounts to reconcile, you will pay much less than someone who does have assets in all of these areas that need to be accounted for. As for speed, once you’ve collected all the necessary information, doing your taxes using tax prep software should very rarely take you more than an hour. And most software is straightforward, instructional, and user-friendly. Many of the cons of tax prep software will be pros for hiring a tax professional and vice versa. Using tax prep software means that you are going it “alone” in a sense – while the software may have helpful tools and insights if you get stuck, it doesn’t have the human touch and knowledge that a trained tax preparer will. Tax prep software also isn’t as well-equipped to handle more complex questions. And with all the COVID aid and new tax rules present in tax years 2020 and 2021, it’s much more likely that you’ll need some extra help navigating those changes. Pros and Cons of Hiring a Tax Pro Hiring a tax pro comes with its own unique perks. One pro of paying someone else to do your taxes is that you don’t have to do them! But besides that, professional tax preparers often have much more advanced (and expensive) tax software they use to make sure your taxes, corrections, and TIN checking are done correctly and accurately. Arguably the biggest pro to hiring a tax preparer is the human touch element. When …