Taxes are a pain in the butt. Let’s just get that out of the way right now. But unfortunately, they’re a necessary evil in our society. So, you might as well learn everything you can about them, right? Keep on reading because we, the most trusted provider of CPA services in NYC, have your back. In this article, we’ll dive into the basics of taxes and answer all your burning questions.
Understanding Tax Brackets and Their Impact
When you hear the phrase “tax bracket”, you probably think of a giant bracket-shaped monster coming to eat your paycheck. And honestly, that’s not too far off. Tax brackets determine how much of your income is subject to taxation. The more you make, the more you gotta give Uncle Sam.
However, it’s important to note that tax brackets only apply to income within that bracket range. So, if you make $50,000 a year and get bumped up to the next tax bracket, only the amount above $40,125 will be taxed at the higher rate.
But here’s where it gets fun. Let’s say you fall into the 22% tax bracket. That doesn’t mean ALL your income is taxed at 22%. It’s a progressive system, meaning the first chunk of income is taxed at a lower rate, and then subsequent chunks are taxed at higher rates. So, don’t freak out just yet.
It’s important to understand how tax brackets work because it can affect how you plan your finances. For example, if you know you’re going to be making more money next year, you may want to consider deferring some of your income until the following year to avoid being bumped up into a higher tax bracket.
Another thing to keep in mind is that tax brackets can change from year to year. In fact, the Tax Cuts and Jobs Act of 2017 made significant changes to the tax brackets. For example, the highest tax bracket used to be 39.6%, but it was lowered to 37%.
It’s also important to note that tax brackets vary depending on your filing status. For example, if you’re married filing jointly, your tax bracket will be different than if you’re single. This is because the tax brackets are designed to take into account the fact that two people living together can often live more cheaply than two people living separately.
Finally, it’s worth noting that tax brackets are just one part of the tax code. There are many other deductions and credits that can affect your tax liability. For example, if you have children, you may be eligible for the Child Tax Credit, which can reduce your tax bill by up to $2,000 per child.
So, while tax brackets may seem daunting at first, they’re really just one piece of the puzzle. By understanding how they work and how they fit into the larger tax code, you can make smarter financial decisions and keep more of your hard-earned money in your pocket.
When can you file taxes?
Tax season usually starts in January and ends in April. That gives you a few months to gather up all your W2s and 1099s and start pulling your hair out.
But did you know that the IRS actually begins accepting tax returns in late January? That’s right, you can start filing your taxes as early as the last week of January. However, it’s important to note that some tax forms, such as the Schedule K-1, may not be available until later in the tax season, so it’s always a good idea to double-check before filing early.
Another thing to keep in mind is that the deadline to file taxes can sometimes fall on a different date. For example, if April 15th falls on a weekend or holiday, the deadline may be pushed back to the next business day. It’s always a good idea to check the IRS website for the most up-to-date information on tax deadlines.
Of course, if you’re really on top of your game, you can file your taxes as soon as January 1st. Of course, that’s assuming all your paperwork is in order and you don’t have a gazillion side gigs to report. Filing early can have its advantages, such as getting your refund sooner, but it’s important to make sure you have all the necessary documents and information before filing.
It’s also worth noting that some states have different tax filing deadlines than the federal government. For example, in Massachusetts, the state tax filing deadline is typically April 15th, but it can vary from year to year. It’s always a good idea to check with your state’s department of revenue to make sure you’re aware of any state-specific deadlines.
Overall, tax season can be a stressful time, but being aware of important dates and deadlines can help make the process a little smoother. Additionally, Ahad&Co has its doors always open to people needing help with tax preparation in NYC, be it individual tax or business tax preparation.
Who can file taxes?
Anyone who earns income is required to file taxes (unless you make below a certain threshold, but let’s not get into the nitty-gritty of that right now). That means if you work a regular 9-5 job, you’re gonna have to file taxes. But did you know that even if you don’t have a traditional job, you may still have to file taxes?
If you run your own business, you’re definitely gonna have to file taxes. This includes freelancers, consultants, and small business owners. It’s important to keep track of all your income and expenses throughout the year so that you can accurately report your earnings when tax season rolls around.
And if you’re a gig worker, you guessed it, you’re gonna have to file taxes. This includes people who drive for ride-sharing services like Uber or Lyft, deliver food for services like DoorDash or Grubhub, or perform odd jobs through platforms like TaskRabbit. Even if you only work part-time or as a side hustle, you still need to report your earnings and pay taxes on them.
But it’s not just about earning income. If you have investments, such as stocks or rental properties, you may also need to file taxes. The rules around investment income can be complex, so it’s important to consult with a tax professional, like our personal tax accountant in NYC, if you’re unsure.
In short, if you earn income in any way, shape, or form, you may need to file taxes. It’s important to understand your obligations and stay on top of your tax responsibilities to avoid penalties and fines.
When it comes to taxes, the difference between being an employee and an independent contractor can be significant. As mentioned earlier, if you’re an employee, your employer withholds taxes from your paycheck throughout the year. This means that you don’t have to worry about setting aside money for taxes or making quarterly estimated tax payments. On the other hand, if you’re an independent contractor, you’re responsible for paying your own taxes. This can be a bit overwhelming, especially if you’re new to the world of self-employment. It’s important to keep track of all the money you earn throughout the year and set aside a portion of it for taxes. Another thing to keep in mind is that independent contractors can deduct certain business expenses on their tax returns. This includes things like home office expenses, travel expenses, and equipment purchases. These deductions can help offset the amount of taxes you owe, so it’s important to keep accurate records of all your business expenses. If you’re unsure whether you should be classified as an employee or an independent contractor, the IRS has guidelines that can help.
Generally speaking, if you have control over your work and how it’s done, you’re more likely to be classified as an independent contractor. If your employer controls when, where, and how you work, you’re more likely to be classified as an employee. It’s important to note that misclassifying employees as independent contractors is a common issue that can lead to legal trouble for employers. If you believe you’ve been misclassified, you can file a complaint with the Department of Labor or consult with an employment lawyer. In summary, while W2s and 1099s may seem like small pieces of paper, they represent a big difference in how taxes are handled for employees and independent contractors. If you’re considering becoming self-employed, it’s important to understand the tax implications and responsibilities that come with it.
Differences between standard and itemized deductions
Okay, now we’re getting into the real meat and potatoes of taxes. Deductions are basically ways to reduce how much of your income is subject to taxes. There are two types of deductions – standard and itemized.
The standard deduction is a flat amount that you can subtract from your income without having to provide any additional proof. This deduction is available to all taxpayers, regardless of whether they have any deductible expenses or not. The amount of the standard deduction varies depending on your filing status, age, and whether you are blind or disabled.
For the tax year 2021, the standard deduction amounts are as follows:
- $12,550 for single filers and married individuals filing separately
- $18,800 for heads of household
- $25,100 for married couples filing jointly
The itemized deduction, on the other hand, is where you can tally up all your expenses related to things like healthcare, charitable donations, and property taxes, and then subtract that from your income. This deduction requires you to keep track of all your expenses and provide proof of those expenses when you file your taxes.
Some of the expenses that can be itemized include:
- Medical and dental expenses
- State and local income, sales, and property taxes
- Home mortgage interest and investment interest
- Charitable contributions
- Casualty and theft losses
Which deduction should you take? It all depends on your situation. If you have a lot of deductible expenses, itemizing might be the way to go. But if your expenses are minimal, you might be better off taking the standard deduction. It’s important to note that you cannot take both the standard deduction and itemized deductions in the same tax year. You must choose one or the other.
It’s also worth noting that the standard deduction has increased significantly in recent years, which means that fewer taxpayers are itemizing their deductions. This is due to changes in the tax law, including the increase in the standard deduction and the cap on state and local tax deductions.
Ultimately, the decision of whether to take the standard deduction or itemize your deductions depends on your specific financial situation. It’s important to consult with a tax professional or use tax preparation software to determine which deduction is best for you. If you’re in New York, give us a call, and we’ll get you the best tax preparer in NYC.
Tax deadlines
As the saying goes, there are only two certainties in life: death and taxes. While we can’t avoid either of them, we can at least prepare for tax season and its dreaded deadlines.
April 15th is the most well-known tax deadline, but did you know that it’s not the only one? If you’re a business owner, you’ll have different deadlines depending on your entity type. For example, partnerships and S corporations have a March 15th deadline, while C corporations have an April 15th deadline.
It’s important to note that if you miss a deadline, the IRS will charge you interest on any taxes owed. The longer you wait, the more interest you’ll have to pay. Plus, if you owe money and don’t file on time, you’ll be hit with a late-filing penalty, which can be up to 5% of your unpaid taxes per month.
However, if you’re owed a refund, there’s no penalty for filing late. In fact, you have up to three years after the original deadline to file and still receive your refund. So, if you forgot to file your taxes for the past couple of years and are owed a refund, it’s not too late to get that money back!
But what if you can’t file your taxes by the deadline? Don’t panic. You can file for an extension, which will give you an extra six months to file your return. However, it’s important to note that an extension only gives you more time to file your return, not more time to pay any taxes owed. You’ll still need to estimate how much you owe and pay it by the original deadline (April 15th for most taxpayers).
In conclusion, while tax season can be stressful and overwhelming, it’s important to stay on top of deadlines and be proactive in preparing your return. And if you do need more time, don’t hesitate to file for an extension. Your wallet will thank you!
The Pros and Cons of Tax Refunds
Ah, the almighty tax refund. It’s like a bonus check from the government, right? Well, not exactly. A tax refund is basically giving the government an interest-free loan throughout the year. You’re overpaying in taxes and then getting the excess back in the form of a refund.
While it may feel nice to receive a lump sum of money all at once, there are both pros and cons to receiving a tax refund. One of the biggest advantages of a tax refund is that it can be a great way to force yourself to save money. For many people, it’s difficult to put money aside each month, but when you receive a lump sum, it’s easier to put that money towards a savings goal. Additionally, a tax refund can be a great way to pay off debt or make a large purchase.
However, there are also some downsides to receiving a tax refund. As mentioned earlier, when you receive a refund, you’re essentially giving the government an interest-free loan. This means that you’re missing out on the opportunity to earn interest on that money throughout the year. Additionally, if you’re relying on a tax refund to pay for expenses, it could be a sign that you’re not budgeting effectively. Adjusting your withholdings so that you receive more money in each paycheck could help you avoid relying on a refund to make ends meet.
It’s important to note that the amount of your refund is determined by a variety of factors, including your income, deductions, and credits. If you’re unsure whether you’re withholding the right amount, you may want to consider consulting with a tax professional. They can help you determine the best strategy for withholding to ensure that you’re not overpaying throughout the year.
In conclusion, while a tax refund can be a great way to save money or pay off debt, it’s important to weigh the pros and cons before deciding whether to adjust your withholdings or continue receiving a refund each year. By understanding the factors that determine your refund and consulting with a professional, such as our accountant in NYC, you can make an informed decision that’s right for your financial situation.
What to Do If You Owe Money on Your Tax Return
Sometimes, despite your best efforts, you end up owing money on your tax return. It’s okay, it happens to the best of us (well, except for maybe accountants – they seem to have it all figured out). If you owe, don’t panic.
First and foremost, it’s important to understand why you owe money. One reason could be that you didn’t have enough taxes withheld from your paycheck throughout the year. Another reason could be that you had additional income that wasn’t subject to withholding, such as rental income or self-employment income. Whatever the reason, it’s important to understand the root cause of your tax debt so that you can take steps to avoid owing in the future.
If you do owe money, the IRS offers several options for payment. One option is to set up a payment plan, as mentioned earlier. This option allows you to pay off your debt over time, typically in monthly installments. It’s important to note that interest and penalties will be added on top of what you owe, so it’s in your best interest to pay off your debt as soon as possible.
Another option is to pay your debt in full using a credit card. While this may seem like a good option at first glance, it’s important to consider the interest rates and fees associated with using a credit card. In many cases, the interest and fees may be higher than what you would pay in interest and penalties to the IRS.
If you’re unable to pay your tax debt, you may be eligible for an Offer in Compromise. This is a program that allows taxpayers to settle their tax debt for less than the full amount owed. However, it’s important to note that not all taxpayers will qualify for this program.
In conclusion, owing money on your tax return can be stressful, but it’s important to remember that there are options available to help you pay off your debt. Whether it’s setting up a payment plan, paying with a credit card, or exploring other options, it’s important to take action as soon as possible to avoid additional interest and penalties.
Common Tax Mistakes to Avoid
Let’s face it, taxes are confusing. It’s easy to make mistakes when you’re trying to navigate all those forms and tables. Here are a few common mistakes to watch out for:
- Entering the wrong social security number (yikes)
- Miscalculating deductions (that’s gonna hurt)
- Forgetting to report all your income (oops)
The good news is that most of these mistakes can be avoided by taking a little extra time to double-check everything. Or by hiring a professional accountant, but that’s not as fun.
Paying Quarterly Taxes: A Guide
If you’re self-employed or have a side hustle, you might be required to pay quarterly taxes. This means you have to send in estimated payments to the IRS every few months throughout the year.
It can be a pain, but it’s important to stay on top of these payments to avoid penalties and interest. The amount you owe will be based on how much you expect to earn for the year, so it’s important to keep accurate records of all your income and expenses.
Conclusion
Phew, we made it through! Taxes might not be the most exciting topic in the world, but hopefully this article helped clear up some of the confusion. Stay tuned for Part 2, where we’ll dive even deeper into the wonderful world of taxes.
