Federal Income Tax Guide 2021 for 2021 Tax Preparation

Joseph Meyer
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2021 Tax Guide

We have good news! The 2019 tax season is over and done with. That means there’s nothing left to do but start thinking of the next tax season. We want to offer you a helping hand by discussing an overview of what comes next. Our federal income tax guide for 2021 will give you an idea about what to expect next year.

What is the Federal Income Tax?

The federal income tax refers to the US federal tax code that also covers income tax as it refers to the federal government. The federal government imposes taxes on its citizens, which is a way to collect revenue for providing services and funding certain initiatives. In the US, there are many different taxes you pay to the federal government, like sales tax and excise tax. You may even be subject to some extra fees if you have a federal loan or if you live in a household with more than one person and you still have to file federal taxes. The purpose of federal income tax is to ensure that everyone living in the US pays their fair share of taxes.

How Are Federal Taxes Collected?

Do You Need to File a Tax Return?

Keeping on top of all the latest tax laws can be very challenging and confusing. If you don’t have a background in this area, there’s a good chance you might overlook certain details. However, it’s very important that you take the time to make sure that you’re meeting all of your basic tax filing requirements. Otherwise, you may be responsible for penalties and interest payments.

So the question is: Should you file a tax return? You’re required to file a tax return if your taxable income is above certain levels based on your situation. You may receive a Form W-2 from your employer, a 1099 form from the IRS, or a similar refund form, but these only help to determine the financial gain or loss you gathered during the tax year.

Unlike other documents that you receive from employers or financial institutions, you can file the IRS tax schedule to help you determine whether or not you’re required to file a tax return. Frequently, people file their returns too early during the previous tax year or may miss the last day to file.

Income Limits

The insurance premium tax credit (in order to determine eligibility for the credit, you must file IRS Form 8962, Premium Tax Credit, with your tax return) is available to those with incomes up to 400% of the federal poverty line. In this post, we’ll discuss individuals with incomes from 138% to 400% of the federal poverty line. Individuals with incomes below 138% of the federal poverty line, can instead take the premium tax credit for the cost of Medicare, so you should consult IRS Publication 974, Premium Tax Credit, for more information in these cases. In order to claim the health insurance premium tax credit, you must file Form 1040 or Form 1040A, along with Form 8962 when you file your income taxes. See schedule EIC for those filing form 1040.

Additional Requirements

How to Determine Your Tax Filing Status

The first step in preparing your tax returns for next year is to figure out how to determine your tax filing status for the 2019 Tax Season. Before we get to that, let’s take a quick look at the two primary types of income taxes for most tax payers:

{1}. Income taxes- Individual income tax and payroll taxes, which are taxes withheld from your paycheck.
{2}. Property taxes- A tax levied based on the value of property. Property taxes support local governments similar to school district property taxes.

Your tax filing status is will determine how much income you must report, whether you can claim itemized deductions, and if you must file a state and/or local income tax return. One of the most common ways to determine your tax filing status is based on the standard living situation.

Tax Preparation Considerations

What is a federal income tax guide? Here we apply the wisdom of tax professionals from around the country, who’ve combined to create the leading 2019 federal income tax guide for preparing your own return.

This federal income tax guide for 2018 is the most useful guide for the 2019 tax season and includes a treasure chest of tax preparation tips. It also provides a summary of the basic rules for preparing your own tax return, including what you need to know about provisions such as Schedule C and self-employment taxes.

This book has been created to educate you about the ins and outs of the process. However, we can’t provide you with the knowledge necessary to complete your return. Only through trial and error, and research on your end, will you develop the skills to complete it. Additionally, this federal income tax guide offers some help from professionals, but it’s best to consult with a qualified accountant, a CPA or a tax professional. They know the ins and outs of the process, and they can apply all the other forms of tax return assistance that you may need to make the whole process easier.

DIY Tax Preparation

There a number of reasons for self-preparing your federal income tax filing, but the most common one is that the process is just so complicated.

Self-preparing the process of filing your 1040 will be a bit challenging, though. Even if you have done it for a few years, there is always new tax legislation to consider. The last time I did it, the process itself was not too difficult. But the time it took to understand the new US tax laws required three hands.

That’s why on the final day of tax preparation an accountant will often go to an accountant. In fact, during tax season almost all of us go to accountants.

The problem is that we all have limited resources. There are only so many accountants available that are willing to take on an “all-year” client.

The main obstacle that’s stopping people in signing with excellent bookkeeping services is the fact that today’s modern tax laws are so complex that many accountants have not had the time to truly understand every nuance of the IRS guidelines. And even when they do understand the guidelines, they may not be aware of new tax laws that are introduced to the public every year.

CPA vs. Enrolled Agent (EA)

CPA and EA are both high-level, tax-eligible credentials. Many EAs and CPAs are also Certified Financial Planners.

Both can do tax prep, but many CPAs do not do tax prep. CPAs are trained in tax issues, and many spend their lives doing tax work. CAs and EAs have earned credentials.

CPAs have far more experience. EAs have much less experience. This is because the bar is lower for EAs than CPAs.

Certified Public Accountant (CPA)

A citizen or resident of the US can sit for the CPA exam after earning their degree in accounting or business, CPA candidates must pass the CPA exam, and although state requirements vary, candidates must be a college graduate in good standing and must have completed 150 hours of college level education in accounting.

At some point after earning your CPA, you might want to earn a CPA license, the national credential that requires the completion of certain education and experience requirements, as well as passing the CPA exam. The exam tests the expertise of potential CPAs in performing the following, which are geared towards earning an income:

  • Auditing and Attestation
  • Business Environment and Concepts
  • Financial Accounting and Reporting
  • Regulation
  • Management Consulting
  • Taxation
  • Enrolled Agent (EA)

A Checklist to be Ready to File

You are almost done! We are almost ready to file your tax return. There are a few more steps we need to take to be 100% ready to file and start getting your refund back. As you begin to gather up items you’ll need, here’s a checklist checklist to get you ready to file your 2021 tax return:

  • Find last year’s tax return if needed
  • Get a copy of your W-2, W-2G, and 1099s
  • Find out if you get a tax refund or owe
  • Decide if you want to use a tax service
  • Create your own tax return or apply for it online
  • Sign up to e-file your tax return

Income Documentation

In order to file your tax return, you’ll need a lot of documentation, including your supporting financial documents or tax records. These documents will not only allow you to file your tax return correctly but also help you receive all the tax benefits that you’re entitled to.

You’ll need the following documents to prepare your tax return:

  • Proof of income: Your proof of income can be your pay stub, W2, or 1099.
  • Required withholdings: Your supporting financial documents include proof for your income tax withheld, such as a W2G from gambling winnings or 1099-INT from interest income.
  • Expenses and deductions: Your proof of certain deductions can include expenses, such as medical expenses, homeowners association dues, or charitable donations.
  • Social Security number / ITIN: This information is used by the Social Security Administration to verify your identity.
  • Foreign addresses: If you have a foreign address, you’ll need to provide additional proof of your residency and tax residency to support your tax information.

Documents for Reporting Expenses

When you prepare your taxes, your tax preparer will ask for a variety of tax documents or forms to support your itemized deductions. By gathering these documents ahead of time, you’ll save yourself some time and make the filing process smoother.

GP 20: Proof of Employment- If your employer paid you with a check from your regular paycheck, ask your employer to sign an “Ownership Certificate.” The signed form certifies that your employer owns the check and that the deductions you are claiming are for your own account and not for your employer’s benefit. It will protect you from having to pay back taxes owed on money claimed as a deduction.

1098: The 1098 form is the “official” tax reminder document that proves you paid interest on your mortgage.

1098-C: This is the form that shows that you get a refund of income taxes that you overpaid to the government. The tax preparer will use this form to calculate if you have paid too much Social Security Tax and must be refunded.

1098-E: This form proves that you paid student loan interest in the previous year. You may be able to deduct part or all of your student loan interest if it was included in the above 1098 and if you file as a single or head of household.

Expenses That May Require Additional Documentation

Here are some items that, in most cases, are not included in the annual report filed with the IRS (Form 1099s). However, you may be asked to provide documentation if your tax return is investigated. These items do not qualify for non-business deductions on your federal income tax return:

  • Automobile license fees
  • Carry-out food and beverages
  • Club dues and memberships
  • Dues paid to chambers of commerce, trade associations or similar groups
  • Expenses for moving or storing household items
  • Gifts for weddings, birthdays or other personal events
  • Inheritance, estate and charitable contributions
  • Investment expenses
  • Laundry and cleaning supplies
  • Mortgage interest
  • Personal education, such as high school courses obtained to meet requirements for a job
  • Professional indemnity or malpractice insurance premiums and malpractice awards
  • Purchase of life insurance, health insurance, Medicare coverage, and health savings account (HSA) deposits
  • Residential construction, moving or medical records
  • Satellite television service
  • Taxable portion of casualty or theft losses

The following items do not qualify for a deduction. However, you are not required to provide documents for them.

Gambling Losses

Gift, tuition and inheritance tax.

Federal Income Tax Rates for 2019

2018 Tax Changes for 2019

The Tax Cuts and Jobs Act of 2017 is the most sweeping tax reform bill since 1986. The US federal income tax brackets for 2019 have changed, and that will impact how much you pay in taxes. Anyone trying to do their own taxes will need to pay attention to these new tax brackets and the new standard deduction amounts. There are other significant changes too, including an increase in the child tax credit and changes to the tax law regarding alimony.

For individuals, the income thresholds for each tax rate bracket and the standard deduction amounts have also changed. Below are the new tax brackets for 2019, including the taxable income thresholds for each bracket and the maximum amount of tax that can be associated with each bracket.

2019 Federal Income Tax Brackets

These are the new tax brackets for 2019. They represent the income thresholds for each tax bracket and the maximum possible tax rate. They do not reflect the possibility of certain deductions, credits, and exemptions that might lead you to pay less than the amount listed in this chart.

General Changes

Changes for Families

According to IRS.gov, the tax season is upon us. So whether you need to file taxes or not, the simple truth is that most people will at some point find themselves in need of a tax preparer. Whether or not you know it, you’ve probably seen the commercials, and they’re pretty prevalent on every channel.

What most people don’t know is that not all tax preparers are created equally. Some are skilled at their jobs, while others aren’t as well-trained or experienced at assisting taxpayers with their tax needs.

Whether or not you have to file taxes this year, it’s essential that you know as much about federal income tax guide 2021 as you can.

As part of this, you should fully understand how to choose a tax preparer. If you’re going to pay someone to help you with your taxes, the last thing you want is to end up paying for their mistakes when you file.

Changes for Small Businesses

The following are general guidelines for the tax areas that are affected by the TCJA. These changes are generally effective on the following dates: However, they can have earlier effective dates. These effective dates will not be reflected in our tax guide because it is not yet possible to determine the IRS’s official effective date.

Business Tax Adjustments

New 20 percent deduction for qualified business income of sole proprietors, other than farms (For tax year 2017, the deduction is in effect for only pass-through entities that are not engaged in a trade or business that is a passive activity. Excluded from this deduction activity are specified service trades or businesses, real estate businesses and personal service businesses.)

Limited deduction for moving expenses.

Alimony paid where a divorce decree was in effect is not deductible by the payer or taxable to the payee. (Effective January 1, 2019, alimony payments are no longer taxable to the payee and are no longer deductible by the payer.)

The following 20-percent deduction will apply for qualified business income.

Changes to Mileage Allowances

Mileage allowances are at the heart of tax breaks for commuters. If you're able to document your driving with toll receipts, you could be eligible for a deduction against your income taxes. Tax laws change from year to year, and the IRS tries to catch up with those changes in the Federal Income Tax Guide for 2019.

The mileage allowance for 2019 is 54 cents a mile, down from the 56 cents level of the previous year. If you qualify, you can deduct either the mileage allowance or with actual expenses. For instance, the Internal Revenue Code allows for total mileage delays, tolls, and parking. Alternatively, you could deduct the actual costs such as insurance, gas, oil, tires, and repairs.

If you use a vehicle for work, the IRS has the "standard mileage rate" or "column rate" for tax purposes. The IRS has a different rate for business use and personal use.

Whether 2019 will bring an upward lifestyle to these allowances or not remains to be seen. The IRS is watching the tax rates in light of the 2017 Tax Cuts and Jobs Act. If inflation rises, the IRS might adjust the 2019 mileage allowances as well.

Previously, taxpayers could use the mileage allowance in conjunction with the actual expenses method. However, for the 2019 tax year, that provision is repealed for long-term contracts.

Tip: Exercise caution when deducting a loss from a vehicle in connection with your business or rental activities.

Income Thresholds for the Alternative Minimum Tax (AMT) Increase

No Change in the Net Investment Income Tax (NIIT)

The NIIT is based on net investment income as you figure it on line 4 of Schedule D, the modified adjusted gross income.

The NIIT is 3.8% of the lesser of:

Net investment income.

The amount on line 37 for Form 1040.

The 3.8% NIIT remains unchanged for tax year 2021.

Many taxpayers will not have to pay the NIIT. Specifically, lower-income taxpayers will usually be exempt from the NIIT because they do not have any income subject to the NIIT.

Tax Deductions and Credits

Standard Deduction

Step 1: Fill out the first page of IRS Form 1040. Since you normally do not include a federal income tax guide 2021 form when filing your taxes with the IRS, the IRS doesn’t include a specific line for it. Instead, they provide space on the first page of IRS Form 1040 to fill out the Social Security Number, Taxpayer Identification Number, your name, and your Spouse’s name.

Step 2: Turn the page. In the second column, the IRS lists general instructions for filling out all of the columns on the IRS Form. This is where the IRS provides you with instructions on claiming the standard deduction. To take the standard deduction, you must check the box next to “standard deduction” and then fill out the subsequent columns with the requested information. This is also where you will indicate whether you are single or married.

Some of the more popular tax credits include:

Tax Deductions and Credits for Small Business Owners

One of the first things business owners think about at tax time is whether they have U.S. government tax deductions and credits to take. After all, what is the point of spending all that money on business taxes if you can’t deduct any expenses?

There are certain deductions that are always allowed and tax credits business owners can take advantage of. Here’s a look at some of the more valuable items in the small business owner’s arsenal for tax year 2019 (returns for tax year 2021 will be due in April 2021).

Tax Deductible Medical Expenses

Tax season is upon us once more, and many of us are scrambling to crunch some numbers, file some forms, and hopefully save a bit of money.

The New York Times has a great tax planning guide that will guides you through the steps you need to take to get your taxes right. There’s a lot of information on the site, so we’ve pulled out some of the most important points and consolidated them for you here.

There’s a lot of information on this page, but don’t let that intimidate you. If you have a simple situation, go ahead and use these charts as a starting point. If your situation is a bit more complicated, try the TaxAct calculator, which will ask you a few simple questions and then make the necessary calculations based on your answers. Either way, you should always consult a professional tax preparer for your specific set of circumstances.

Tax Deductions for Charitable Deductions, Including Clothing

Mortgage Interest Deduction

The Mortgage Interest Deduction is an important tax benefit when buying a house. It allows homeowners to deduct all of the interest they’ve paid on their home loan over the year. This benefits homeowners and is a boon for the housing market.

But you cannot simply deduct all of your interest payments on the home loan. You must follow the IRS rules to claim the deduction. The following are general guidelines for qualifying for the mortgage interest deduction:

Be legally liable for the loan as a co-signer

You must also review the IRS guidelines for how to qualify for the mortgage interest deduction.

Make sure you have paid a minimum estimated tax.

You must review the requirements at the IRS website.

Deduction for State Income, Real Estate, and Sales Tax

As we discussed previously, any of the following types of taxes paid to a state, county, or city may be deducted under an IRC § 164 of a federal income tax return:

  • State income tax,
  • Real estate taxes on personal residence, and

Sales taxes paid.

It is important to know that the above-mentioned tax types are deductible on a federal income tax return only if they have been paid for the tax year for which you are preparing a tax return. If you are expecting a tax deduction for an upcoming tax year, but such taxes have not been due yet, you will not be able to deduct them on your federal income tax return until they have actually been paid at the end of the year.

For example, for a homestead property owner, if the tax assessment date for his or her real estate property extends over two tax years, the tax owed can be deducted under IRC § 164 for the tax year when it is due. If the property owner is expecting a tax deduction for the other year, he or she will be required to wait until the end of said year to deduct the taxes paid in the following year.

Tax Gift and Inheritance Rules

Filing your federal income taxes is something that the majority of adults who earn a regular income have to do annually, as least in the US. To successfully file your federal income taxes, you must know when you have to pay taxes, how to prepare your tax return, how to file your taxes and how to claim the tax deductions that could reduce your tax burden.

In the following article, we’ll focus on the federal income tax guide for 2021, in other words the 2019 federal income tax guide that you can use in the preparation of your 2019 income tax.

We’ll provide you with the most important tax rules for the 2019 tax year and the 2018 tax year.

IRS Gifting Rules

Understanding Estate/Inheritance Tax and Inherited IRA Rules

What is an Inherited IRA?

An inherited IRA is an IRA left to you by a deceased individual who names you as beneficiary of the IRA. You can take one of two general options regarding your inherited IRA:

{1}. You can withdraw the entire amount of the IRA as a lump sum. In this case, you are generally taxed on the amount you withdraw at your ordinary income tax rate, unless you are the spouse of the deceased or are named as a beneficiary in a will or trust.
{2}. You can treat the IRA as your own and leave it in the account. In this case, you can either withdraw the funds in periodic payments, a process called “ stretch the distribution,” or take withdrawals in a single year (the 5-year rule).

Taking periodic payments allows you to avoid the 10% early distribution penalty on the portion of the IRA that was distributed to you prior to age 59-1/2. You are also not required to take annual required minimum distributions (RMD) after you are 70-1/2. However, you could run the risk of running out of funds in the account.

You cannot actively participate in the management of the inherited IRA. If you do, the IRS will treat the account as your own and you will owe the taxes as though the account were fully yours.

Should You Do a Charitable Remainder Trust?

One of the most popular ways to reduce probate taxes is to do a charitable remainder trust. A charitable remainder trust works like this: You donate a certain portion of the value of your home to it. The proceeds from the sale of your home are then used to buy a small annuity interest in the charitable remainder trust. And when you die, your heirs receive the remaining assets.

A few things to consider:

  • The trust value is used to either buy annuity payments or purchase life income or remainder interest.
  • You receive a charitable income tax deduction for the fair market value of the home.
  • The amount of income you receive during your lifetime is up to you. But unlike a reverse mortgage, it won’t exceed the value of the home.
  • If you sell your home or move out before you die, you’ll have to repay the trust.
  • You can change the income you receive at any time; however, you’ll usually have to pay a 10 percent penalty.
  • Your heirs receive the remainder interest free of estate, income and gift tax.
  • The trustee can invest the assets as it sees fit, so you may not even need to remove the assets from your financial advisor.

Tax Considerations for Your Children

Dependents, and Yourself in the Workplace.

Let’s jump right in. You’re most likely wondering how you can make your money work for you when it’s gone. There are a few things you should know about taxes before you can reach your end goal when it comes to living your best financial life. That’s why I’ve decided to illustrate, using the income tax guide for the year 2021 (provided by the IRS) how to get your money back in your pocket.

First, you need to know the basics of how your income is taxed. When your employer sends your paycheck, it’s considered a W-2 wage. W-2 wage is broken up into two separate categories: the tips you’ve earned and what you’ve earned from the service industry. In this section, we’re going to talk about what the government considers to be salary.

The most significant takeaway in your income tax guide is that the compensation received for services performed as an employee excludes certain types of payments. This makes a huge difference because you will only pay tax on your salary, and not your tips.

Custodial Accounts for Minors – UGMAs and UTMAs

—an effectively tax-free situation for the child.

Please note that these figures are approximate values. The specifics of any UGMA/UTMA account must be reviewed with a professional tax advisor for the most accurate information.

529 Plans

A 529 college savings plan is a tax-advantaged trust or custodial account authorized by a state that is considered a state plan under Section 529 of the Internal Revenue Code (IRC). Section 529 plans have the same basic investment and distribution requirements. They provide a way for dependent and independent students to save money for qualified higher-education expenses.

A 529 plan is a tax-advantaged state program that allows you to save money for qualified higher-education expenses and covers tuition at colleges, universities, technical schools, and graduate schools.

The program is structured as a trust or custodial account held for the benefit of the student.

You can invest in a variety of investment options made available by the plan.

The money you deposit, along with interest earned on it, is not taxable until it is used for qualified education expenses such as tuition, fees, books, equipment, and room and board. You do not get a tax deduction for contributing to a 529 plan.

You are the beneficiary of the account and you control it.

You determine how your contributions to the account, along with investment earnings, are used.

States set up their own 529 plans and determine the investment options and other terms and conditions, such as whether the contributions are eligible for a tax deduction, whether there are income restrictions, and whether rollovers are allowed.

Tips to Pay Your Taxes

One of the most common fears is not filing your income tax on time and becoming a tax offender. This delays the process of filing for an extension. You need to make sure that you have a few days before the 10th day of April to file for an extension. This will allow you to file your income tax returns on time.

The extension that you get is for the amount of time that you will need to gather your information. If you think that you are going to need more time, you can also request another extension once the original one ends.

You can do something about your tax situation, even if it is not filed. This will prevent you from becoming a tax-fraud risk.

Paying Taxes on Earned Income

With federal income taxes, your world is divided into three easy-to-understand categories: filing single (as a single person), married filing jointly (you and your spouse), and married filing separately (you and your spouse filing on separate returns). Your filing status helps determine which income, deductions, credits, and benefits you’re allowed to claim.

Paying Federal Income Tax on Retirement or Bonus Income

If you are receiving a retirement plan distribution from your former employer, or received a lump-sum bonus from your employer, the federal government will likely levy taxes on the amount. For example, let’s say that you recently retired from your job and you’ve received a lump-sum distribution, which is a pay-out from the company that is a combination of contributions, interest and/or dividends. A form of the distribution could be your entire interest and dividend balance, which represents the amount of money you earned while working at the company. It can also be like a bonus that the company awards to you. The tax rate you are liable to pay is typically in the range of 20% to 35%, depending on your total income.

There are also some exemptions available to taxpayers. You may be eligible for an early-distribution exemption if you meet at least one of the following conditions.

  • You are 59 and a half years old, or older, and have been receiving distributions from the plan for at least five years.
  • You are already receiving social security benefits.
  • You have received the distribution the year you started receiving social security.
  • You are paying medical or educational expenses for yourself or your spouse.
  • You use the distribution to buy, build, or repair your first home.

How to Pay Your Taxes Online (with a Credit Card)

The AVR (Alternate Voluntary Regularization) is a payment of the taxes owed by a taxpayer with an amount of his or her choosing (between one and three times the total amount of taxes owed). Once done, it grants the taxpayer a three-year period of tax suspension, though nothing prevents the IRS from charging the taxpayer any unpaid amounts over the three-year period.

AVR payments, and the right to temporarily suspend their tax payments, aren’t restricted to people with the means to pay the taxes they owe. AVR payments are available for taxpayers who don’t want to pay their taxes with cash, but don’t want to use credit because of the high interest fees.

In principle, AVR is similar to paying your taxes using a credit card; however, the Internal Revenue Service (IRS) does not offer this as an option. On the other hand, credit cards companies do.

In order to pay your taxes using a credit card, you’ll need to use a credit card and get it authorized by the IRS. Each credit card will have its individual conditions, but in general, you’ll need to:

Call the credit card company for an IRS AVR authorization number

How to Get Your Tax Refund As Soon As Possible

The IRS sends out over 90% of tax refunds in less than 21 days, and seven out of 10 refunds arrive within less than 12 days after the IRS receives your return. That means that if you want to get your tax refund as quickly as possible, you don't have to wait until April or even the end of the calendar year. You can get your tax refund as early as possible if you file your tax return and e-file it in January.

The IRS doesn’t send out refunds based on a specific schedule. A return received on Friday is processed the same as one received on Monday. The sooner you file your federal income tax return and send in your tax payments, the sooner you can get your refund. When you file your return and e-file it, you should get your tax refund within 21 days.

The IRS will automatically e-file your return and send it to the appropriate state tax agency if you have indicated that you're filing a state return with them. If you don't want to, or can't, e-file with the state, you'll need to do it manually. And it may take a bit longer to get your state refund.

How to Avoid Income Tax Refund Fraud

IRS-Imposter Scams Taxpayers are aware of thieves that make phony attempts to take money from their bank accounts or steal their identity. While not totally unpredictable, thieves stealing your identity or your tax refund are not as common as thieves stealing your money or goods.

Another type of non-bank fraud that tax payers may be unaware of is the imposter scheme. These frauds involve someone posing as an IRS employee and asking taxpayers to send money to them. These thieves often request money by phone or email and use fake or stolen names and IRS badge numbers. When the illegal refund is directed to bank accounts that thieves have established, the victims do not learn of the crime until they file their tax returns and do not receive their anticipated refunds. Thieves normally claim these illegal refunds by filing false tax returns.

How does this scheme work? The fraudsters will send out nearly a million phishing emails, hoping they will deceive innocent people. A percentage of the emails will reach the accounts of the victims. Victims are generally asked to send back a confirmation of some kind of personal information. This can be something as simple as an all-caps name or a date of birth. Once the thief has the information, they file a partially completed tax return using the personal information that was provided.

What to Do with Unfiled Tax Returns and Back Taxes Owed

Our federal income tax guide explains how to file for tax-free status for your tax returns that you did not file, or yearly tax payments that you did not make.

If you have unfiled tax returns, and did not file your 1040, 1040A, or 1040EZ on time, you may be able to file for tax forgiveness with Form 1040X or Form 4852.

The IRS has special rules for people who forgot to file their tax return, often due to a financial situation, health issues, or another family problem. There is no penalty for filing a late tax return. If your tax return is late, be sure to request an Interest-Free Payment Plan. That way, you can file a late return without being charged interest.

If the IRS is trying to collect past due taxes from you, you may be eligible for an offer in compromise or a pay-only-interest Offer in Compromise.

If you do not qualify for an offer in compromise, you may still be able to settle your back taxes by making monthly installment payments through an Offer in Compromise.

You can be on an Offer in Compromise (OIC), a pay-only-interest offer, or both at the same time. But you can be on an offer in compromise without being under a pay-only-interest offer.

How to Avoid a Tax Audit – And What to Do if You Are Audited

In recent years, we have seen a dramatic increase in the number of audits occurring. This is confusing for those of us who wonder if we are actually doing enough to lower our chances of being audited. A tax audit could happen to you even if you thought you were in the clear.

Below, we are going to cover everything you need to know about how to avoid a tax audit and what to do if you are audited.

How Does Consumer Debt Affect Your Taxes?

The filing date for your 2019 tax return is on Tuesday, April 15, 2021. Be aware that the IRS issues tax refunds by direct deposit, so your banks may not include them in their weekly direct deposit schedule. Make sure your employer and your tax preparer have your correct banking information.

A taxpayer must file a return each year and with every 1040, there are decision trees, instructions, considerations, tax tables, and calculations.

The IRS will automatically generate a return if you are eligible to do so, just so long as the IRS has a record of your filing. You can check it out at IRS.gov/DLN.

How To File a Tax Extension

The Internal Revenue Service (IRS) allows tax payers to pay their unpaid tax burden in installments. If a person owes taxes at the end of each tax year, he/she is required to pay the tax in specific installments. All tax payers are required to pay their quarterly tax returns. Therefore, a Tax Extension is being proposed by the IRS to make sure that all the tax payers give their payment on time.

If you want to get some more time to file your income tax, you can complete your income tax up to October 15. If you can’t do it within this date, you can take your time and file your income tax up to April 15 of the following system.

The process of a Tax Extension is very simple. You are required to complete a Form 4868 in order to get an extension of time to file your tax return. The extension of time is available for 6 months.

Conclusion

A tax extension will give you more time to submit your income tax, and it can be used by people who are not able to pay their advance tax on time. If you need more time to file your taxes you can use a tax extension to get more time to submit your income tax.

Tax Extension Requirements

Generally, the goal of IRS is to conduct a fair and balanced tax administration. In order to have a fair and balanced tax administration, IRS will not extend the time to file after the due date without first reviewing the facts and circumstances.

The first step the IRS will look at during an extension request is to determine if the taxpayer can show that a reasonable cause for delay existed. IRS has a set of factors that they will consider in determining if the taxpayer qualified for an extension request.

Too Frequent Requests for Extensions

For the IRS to extend the time to file a tax return, the extension must be based on a reasonable cause.

The IRS will not normally grant an extension request if the taxpayer routinely applies for extensions.

IRS will not normally grant more than three initial tax extension requests in a single year. In cases where the taxpayer is unable to extend for three consecutive years, the IRS will not normally grant an additional extension request.

Filing a Tax Extension Gives You Time

Tax Extensions for Business Owners

Are There Any Benefits to Receiving an Extension?

If you own a small business, there’s a good chance that you feel stressed about filing your taxes.

One helpful way to deal with tax season dread is to just get it over with. Here are some reasons that a business owner might want to apply for an extension:

“ It’s difficult to predict your income, expenses, and taxes owed. If you don’t have a firm grasp on what these numbers are … it’s better to hold off on filing until you’re more confident about your figures.

“ You might need more time to complete the bookkeeping process. Bookkeeping is frustrating enough during good times. If you’re swamped with other work, it’s better to hold off on filing rather than spending hours dawdling over complex tasks that you’re simply not focused on right now.

“ You might need more time to decide how you want to handle certain tax issues. For instance, if your business income dips significantly during the year, you might need more time to decide if you want to take a tax deduction for a loss or wait until next year when the numbers are looking better.

How to File An Amended Tax Return

Filing an amended tax return can be confusing. It can also be an easy process, depending on which form you need to fill out and what the reason for amending your return is. Some amendments, like decreasing or increasing withholding tax, can be made as early as the year prior. This can be done on your original tax return. Other amendments, like adding an exemption, can be filed as late as the year after the original return was made. This requires you to fill out a form called Form 1040X.

Wondering when you should amend your tax return? First, it is essential to know the difference between filing an amended tax return and correcting a tax return. Both of these terms are used interchangeably but they are not the same.

Amending a Tax Return

Amending your tax return simply means that you are changing the information, such as your income or deductions, on your original tax return. This can be done at any time and is not required.

Correcting a Tax Return

Correcting a tax return is different. Correcting a tax return means that you are changing the math calculation of your original tax return using more recent information about your tax status from the IRS. This is generally done within 3 years of filing.

Reasons for Filing an Amendment

Amendments are used to report changes of information on a previously filed tax return. If there is an error or a change in circumstances contained in your tax return, you must report it by filing an amendment. Since the IRS is now able to track and match information in multiple tax years, this may result in an increase or decrease to your taxes.

The most common reasons for filing an amendment are as follows:

The taxpayer can no longer file a tax return electronically for the year in question.

Previous job information has changed after the IRS has issued a refund for the year.

The Landlord’s address has changed, and you are filing a change on the Schedule E.

For a divorce, the filing status has changed from single, to married filing jointly, or married filing separately.

Where to Begin the Amendment Process

If you want to amend your 2019 federal income tax return, first locate the tax return you want to amend for the correct form or instructions. For example, to amend your Form 1040, you need to look up the instructions for Form 1040X, and then find the specific Form 1040X instructions for the year in which you filed. Only amend your return if it would change your taxes. If you just made a mistake, prepare a Form 1040X to correct your error.

For a Form 1040X to be valid, you have to sign your return and state the year you are amending in the “Filed” box at the top of page one. You also need to refer to the tax year the document amends with the following language in the "computation" section of your form: "I want to amend my return for tax year ______ (year to which amended return relates) to correct my name, address or social security number."

Generally, you can claim an exemption (additions to the tax return) from three years from the date the original return was filed, or two years after the tax was paid, whichever is later. However, there is no statute of limitations for amended returns to correct math errors on original returns.

Where Should an Amendment be Filed?

Will My Tax Refund be Delayed?

Rate the Quality of the Tax Return Preparation Services

How Does the Tax Software Work?

Is There a Time Limit?

In the U.S., there is a general three-year statute of limitations for filing income tax returns and paying any tax that becomes due. However, this three-year period doesn’t always apply to all taxes. Some income tax is not subject to the deadline. It’s advantageous to consult with a Certified Public Accountant as well.

If you fail to file a return or pay taxes due by the deadline, you could end up in trouble with the IRS. It will start with a notice from the IRS; continue through fines, penalties, additional taxes, and in some cases even jail time.

However, if you are just a few days late filing your return with the IRS, you may still have a good chance of getting a tax extension on an extension. Keep in mind though, after August 15, the IRS will not accept an extension to file for a business or corporation.

It is always better to over file, then to under report.

How to File

Understanding taxes and how they apply to you is half the battle of preparing your tax returns and paying off your tax liabilities. While filing your own taxes might sound scary, it isn’t actually that hard if you haven’t done it before. This is because the Internal Revenue Service (IRS) has a variety of resources online that makes learning how to file taxes easy for all filers.

Something that can get confusing for individuals during tax season is all the forms the IRS has for various types of taxation. For example, students who have asked for an IRS tax code exemption do have to do their own taxes but first need to ask for a tax-exempt code to use when filing and get a National Taxpayer Identification Number (also known as an ITIN number). While it can be confusing, the IRS has a handy guide on how to fill out your taxes that should make the process easier.

In this guide, you will learn what you need to know about filing your taxes including:

  • The different types of taxes you might need to file your taxes;
  • The four main parts of the IRS filings;
  • The fees involved with taxes
  • The pros and cons of filing your taxes on your own
  • The advantages and disadvantages of having a tax preparer do your taxes;
  • The different IRS resources available

How to Lower Your Tax Bill This Year

For most people, the more you can lower your income tax bill, the less money you’ll have to pay Uncle Sam. And you have some control over how much you owe.

You deserve to keep more of the money you earn. It’s only common courtesy. How much you earn is largely up to you. The more money you earn, the more we can fight for lower taxes. You can lower your tax bill with some basic tax preparation skills. The first step on your journey to tax fitness is knowing how much you owe in taxes, and the first step towards attaining that knowledge is completing tax forms, accurately and on time. I’ll walk you through tax preparation, from the beginning of the year to the end.

Reduce Taxes Through Your 401k, 403b, or 457

The basic idea of retirement through a 401k plan is that you put money away now for your future self…and at the same time, deduct the retirement savings from taxed income now. The result is that you pay less tax, every year!

So if you have a 401k, you can put money into it, or into a similar retirement account, and you can then reduce your current income level for tax purposes. Thus, you can reduce the amount of tax you’ll have to pay, depending on the amount of what you put into your retirement fund and the amount of what you take out of it, in retirement.

Don’t Forget the Match

If you and your spouse work for the same company, you both need to fill out your W-2s exactly the same way. For example, if you took a traditional pension contribution, your spouse must take one also. If you didn’t take one, he or she cannot claim to have done so.

If you have a pension through a former employer that expects you to make an additional contribution, your spouse’s W-2 cannot show that contribution. The same goes for health savings account contributions.

If your spouse was covered under your health insurance, his W-2 will indicate that your company made the contribution to the company plan.

Look For All Possible Deductions

Although most of us have heard of various tax deductions, many taxpayers simply focus on the main deductions. These include deductions for your mortgage interest, state and local taxes, and charitable contributions. If you’re filing as a single or married filer without expecting any significant changes, you may not be going after all of the possible deductions. Here are some deductions that you may have overlooked.

Tomake deductions, you need evidence. This can include receipts and bills showing that you incurred these expenses. You may also have to file a form to warrant the deductions that are beyond a certain dollar amount. By the same token, you may need to itemize these deductions on your tax return.

Give Me Some Credit

Every year, the majority of taxpayers use tax preparation software to complete their taxes … but for many, it’s the last time they’ll have to do it.

In this post, I’ll introduce you to more than a few helpful tax preparation and financial planning resources.

If you’re like most people, you’ve already read about most of them. If you decide to utilize any of these resources this year, you’ll discover exactly what I was talking about when I used the word credit.

Remember, the key is not the resources you choose to use but what you end up doing with them.

Strategies to Lower Your Bill

One result of speaking to clients is that they always come in with more questions than they originally came in for. That’s when I do some extra research to give them the best advice. Several years ago, a CPA friend of mine discussed with me some strategies the IRS is looking at to make sure that the people that have money put in a lot of money, but those that don’t have the money they are putting in is lower than the amount of money they have. (Yes, the IRS has a lot of powers.)

So we made a game plan, and going forward, I am sharing those strategies with you, so you and I are on the same level. The information below is a good starting point, but I recommend that you always consult with an accountant, or use a tax software package like TurboTax.

Consider Carry Forward Deductions.

If you do not have enough deductions to take the standard deduction this year, or your employer did not withhold enough taxes or your tax bill is just too high, there is a great rule to use that will make things easier next year: the carry forward rule.

How Starting a Business Can Lower Next Year’s Tax Bill

If you are currently a self-employed freelancer, you know that accounting for the money you earn is not only important but can be somewhat complicated as well. A lot of freelancers end up spending more time on accounting and administrative work than they do on creating their product or service. That’s why there are a number of programs and services out there that can help. If you can lower the amount you spend on administrative work, you’ll have more time to focus on your actual business.

A service that’s been winning over freelancers and small business owners is Credible. Credible is an online solution that helps you manage your business finances. By automating a lot of the bookkeeping tasks, as well as other financial management, Credible gives you more time to focus on what matters most: your business.

But the benefits don’t stop there. Credible has also developed an optional side feature that makes it even more lucrative for freelancers and small business owners: trackable business expenses.

Final Thoughts

With this guide, you now know how to analyze US income tax for all tax filers, single filers, married couples, and heads of households. You now know the most popular deductions. You also know about exemptions, student loans, and retirement saving and investment.

Thankfully, we have this guide to guide you so you can plan for your future accordingly. After learning about how income tax works, you need to put this information to good use.

So now you can rely on your personal research rather than on the government to decide where you will want to save and what you want your children to have. If you want to be a winner, you need to take the necessary precautions so your tax situation will benefit you the most. Read this guide to learn everything you need to know on the federal income tax.

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