Tax Facts: What You Absolutely Need to Know About Taxes

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Tax Day comes only once a year, but for those of us who have to pay taxes, it can feel like a year-round obligation. Whether you file on your own or utilize a tax professional, it is important to be aware of what your filing obligations may turn out to be and how your choices can affect your bottom line when it comes to money. Clifford, Ross, Raudenbush, and Cooper are proud to provide you with the most important and nifty facts to know about taxes to keep you aware and up to date. 

You May Qualify for Tax Breaks and Credits

In simpler terms, tax credits are dollar for dollar reductions in your tax due. They are usually more beneficial than tax deductions which simply reduce your taxable income. In other cases, you can receive money back with credits even if you don’t any tax. This is made possible with the help of the American Opportunity Association (AOC). If you’re still in school, you may be able to claim the AOC for qualified expenses. This benefit works best for those who earn a low to moderate annual salary. 

No Necessary Prerequisites to Take Advantage of Certain Deductions

In order to take advantage of most deductions, in most cases, you would have to itemize— most taxpayers fail to itemize. Although, all is not lost. The IRS still allows for certain deductions (also known as adjustments to income) that you don’t have to itemize to claim. Among the most popular deductions would be the student loan interest deduction, the IRA deduction, and the moving expenses deduction. 

Estimated Payments Are More Likely if You Are Self-Employed 

The U.S. tax system is considered “pay as you go”. If you’re employed, it is regulatory that your employer will withhold taxes from your paycheck and turn those over to the Internal Revenue Services (IRS). as you get paid. By the end of the year, you’ll either owe more or be owed a refund, depending on your financial situation and your salary. This applies to individuals working under an employer, but what happens if you don’t have an employer or you get paid without having federal income taxes withheld? The IRS will mandate that you file taxes if you owe up to $1,000 or more during tax season. This not only applies to those who are self-employed but also to landlords, corporation shareholders, partnerships, and taxpayers with significant investments. 

An Extension of Time to File is Different from an Extension of Time to Pay

If you are not ready to file your taxes by the time Tax Day rolls around, automatic extensions are available to be requested. The most common and efficient way to file for an extension to file is with a 4648 federal form, although, other opportunities are available. It is crucial to remember that an extension of time to file is not the equivalent of an extension of time to pay. There are no fees accompanied by a filing extension, but if you are expected to pay at tax time, it is best that you make a payment with your extension request in order to avoid an increase in interest and penalties. 

Tax Bills Reductions are Available After The Year-End Passes

In order to reap most of the benefits of a tax break, you have to act upon your taxes by the end of the year. Although, there is one very big and rather helpful exception which is funding your individual retirement account (IRA). According to law, you can contribute to your IRA in your filing year and make it count for the previous tax year as long as you cooperate by Tax Day. In addition, you can claim a tax deduction to be applied to your contributions to your traditional IRA. These contributions can be made all the way up to Tax Day. When this time comes around, be sure to inform your financial advisor that the contribution is for the accordingly year to ensure proper coding. 

The Government Can Take Several Measures If You Fail to Pay Taxes

Most people are aware that the government can charge you fees if you fail to comply with your tax dues. Although, there are a couple of other tricks that you have to look out for before the government takes action. If you owe taxes, the IRS can dent your refund, levy your wages or bank account, and even have the State Department revoke your passport. On another note, the IRS is willing to work with you to move into compliance and face no repercussions. 

Choose Clifford, Ross, Raudenbush, and Cooper for All Your Tax Needs 

Clifford, Ross, Raudenbush, and Cooper go beyond when it comes to tax services and financial advising. Contact us today to learn more about how we can help you file your taxes and earn as much money back possible.