Filing income tax is an obligation of every law-abiding citizen. Whether you are a working adult, a homemaker, a student, or a retiree, it is always good to be knowledgeable about your taxes. Here are some things that you should be aware of while filing income tax:
- E-filing works best E-filing income tax can save time, money, and even trees. With modern income tax software, you can find all the forms that you need online, and e-filing also helps you get returns faster.
- Not filing will cost you dearly Mounting bills might tempt you to avoid filing your taxes, but remember that there is a fine for failing to do it, which is around 5% of the unpaid tax amount. Also, if you do not seek returns on time, they get forfeited after three years.
- Consider an accountant Handling your tax filing on your own is a good idea, but if you are making any large changes in your investments or if you are self-employed, it is advisable to have your income tax work handled by a professional accountant.
- Exemptions can lower your tax Every contributing member of society can avail a discount on taxes. These discounts are known as exemptions, and they reduce the amount on which tax shall be applied. There is a long list of exemptions that your accountant can take you through to find out which ones you qualify for.
- Learn about tax credits A tax credit is deducted directly from the amount of tax you need to pay. Some of the most common tax credits are credits for having a dependent who might be a child or an adult. For instance, if you owe $2,000 in taxes and get a credit of $500 for having an adult dependent on you, you actually pay only $1,500 in income tax. It helps to be aware of credits.
- Tax Cuts and Jobs Act changes The Tax Cuts and Jobs Act has nearly doubled the standard deduction from all taxpayers. For instance, the law will increase the standard deduction for individuals from $6,350 to $12,000. In the case of a married couple filing taxes together, the standard deduction will see a rise from $12,700 to $24,000. You can talk to a financial planner to see how these changes affect you.
- Medical and dental expenses are deductible If your dental or medical expenses have exceeded 10% of your gross income, you can have them deducted. In case either you or your spouse has crossed the age of 65 years, you can have your medical expenses deducted if they exceed 7.5% of your gross income. The expenses include prescribed medications, contact lenses and glasses, preventive care, surgery, and dental visits.
- Taxes are important when planning retirement As a retiree, you should plan your withdrawals carefully so that you are not subjected to a higher tax bracket. There are certain funds during your retirement that incur more tax; for example, funds from traditional retirement accounts. You can get an accountant to help you plan your retirement to avoid paying more taxes.
