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This is the beginning of the best time of the year in America… hate: tax season. Starting February 12thth, the IRS has started accepting tax returns for the 2020 tax year. Here are three of the most common mistakes in the tax season that you don’t want to make:
1) Missing last minute tax saving opportunities.
While it is too late to influence most of the factors that will determine your 2020 tax burden, there are still a few things you can do before April 15th tax filing date. One is to contribute up to $ 6,000 (or $ 7,000 if you turned 50 or older last year) to an IRA for 2020. If you do not have a retirement plan through work or if you meet the income limits -in, you can remove your donations traditional IRA, which can be invested to grow under taxes until it is withdrawn. There is a 10% penalty for withdrawing before age 59 ½, but exceptions include the costs of a qualified education and up to $ 10,000 over your lifetime for buying a home for the first time.
Another type of IRA you can choose is Wheel IRA. The donations cannot be deducted, but the account can become tax free after the age of 59 ½. Unlike a traditional IRA, you can also withdraw the amount of your contributions (but not earnings) at any time without tax or penalty. If your income is too high to contribute to an IRA Wheel, you can contribute to a traditional IRA and then turn it into an IRA Wheel.
If you are in a high-end health insurance plan, another way to reduce your current and future taxes is to contribute to a health savings account (HSA) for 2020 (up to $ 3,550 for individual coverage or $ 7,100 for a family broadcast with an additional $ 1,000 if the account owner turned age 55 or older last year). Like a traditional IRA, the donations are tax deductible, but the withdrawal is also tax-free if used for certified health care costs. You can also use it for non-medical expenses without the usual 20% penalty starting at age 65 (although it will be taxable when used for non-medical expenses).
2) Waiting for file.
There are a number of reasons why taxes are not something to be published about until the last minute. First, you never know when your tax return may be more complicated than you thought. You may need additional documentation or other information or even switch from using software to hiring a professional tax filler. In that case, you will want time to find the right person rather than whoever happens to be available at the busiest time of the tax season.
Second, the worst thing about paying a large sum to the IRS is finding out just before the payment date that you cannot make the payment. You will then be subject to interest and penalties as well. By filling out your tax forms early, you will have more time to save money or get money to pay your tax bill before the April 15th date.
If you get a refund, filing earlier will allow you to get your money back faster so you can put it to work. You also have to pay a fee if you apply for a mortgage or have a child applying for financial help. Doing it early gives you a head start on registering these forms as well.
Finally, one of the most common ways of identity theft is for someone to file an income tax in your name and flee with the refund, leaving you to stop paying. explain to the IRS why everything is wrong. Unlike other forms of identity theft, this cannot be prevented by a credit freeze and does not appear in a credit check because credit is not involved. Your best bet is to file your return before someone else can file for you or at least get an IRS identity protection PIN.
3) Choosing the wrong person to submit your taxes.
With plenty of tax software out there, it’s easier than ever to do your own taxes. If your total modified income is less than $ 72,000, you may even qualify for free file software. Just be aware that these free options will only cover very basic results.
If you don’t qualify, you can still get free fillable tax forms. However, they just do the calculations and offer just basic guidance, so you need to be able and willing to do your taxes on your own. Also, all your information will be deleted on October 20thth so you won’t have access to it afterwards unless you save it elsewhere.
Anyway, making your own taxes is not the right choice for everyone. If you own business or property, doubts in the tax code can make it difficult to determine what income is taxable and what costs can be deducted. Living or working in several states or countries, buying and selling investments in tax accounts, or being a citizen outside the U.S. can make your taxes more complex and spending time. These are all issues where a tax professional could make sense.
However, hiring a preparer is usually more expensive than doing it yourself. In 2019, the average cost for an individual 1040 product was over $ 200. For a simple return, your local H&R Block
HRB
But for more complex situations, you may want to hire a Registered Agent (EA). Representatives registered with the IRS are allowed to prepare individual and business income tax returns and represent taxpayers before the IRS. However, they are generally more expensive than non-credit providers. You can find one on the National Association of registered producers website.
Lastly, if you have a business and need business accounting along with your tax return, you may want to hire a Certified Public Accountant (CPA) who specializes in preparing taxes. Keep in mind that their taxes are the highest level of preparers, so it may be too much for just an individual income tax. If you are also looking for more complete financial planning, consider a CPA who is also a Personal Finance Specialist (PFS).
Of course, there are several other tax filing errors to avoid such as being unorganized or making computer errors, but here are three that can cost you dearly. Try to take advantage of the remaining tax saving opportunities, start early, and choose the right person to prepare your taxes. Then, the tax season may not be like raising taxes.