- Koinly – simplifies crypto tax reporting with lightning-fast calculations, seamless integrations, and global crypto tax services compliance.
- ZenLedger – a powerful and user-friendly software designed to simplify cryptocurrency tax calculations by tracking trades, calculating profits/losses, and ensuring accurate and compliant tax reports.
- TurboTax Software – a user-friendly online tax preparation service that offers a range of plans for individuals, families, and businesses, allowing them to easily file their federal and state taxes.
- H&R Block Software – a tax preparation software designed for individuals and small business owners to easily file their taxes.
- H&R Block’s Expat Tax Filing – service helps U.S. citizens living abroad to navigate the complexities of filing taxes and remain compliant with U.S. tax laws.
- e-file Tax Service – an online tax preparation service that offers free federal and state tax filing for individuals who have a simple tax situation.
- Intuit QuickBooks – a cloud-based accounting software that offers small businesses a comprehensive solution to manage their finances and prepare their taxes.
- Jackson Hewitt – is a tax preparation service provider with over 6,000 locations across the United States.
- TaxAct – is an online tax preparation software that offers affordable and user-friendly solutions for individuals and small business owners.
Filing taxes has always been a complex task, and recent tax reforms have only made it more confusing. Whether you’re a seasoned tax filer or filing for the first time, this tedious job can be overwhelming. The numbers can get mixed up, the paperwork is extensive, and you’re never quite sure if you’ve done everything correctly.
This is why many people choose to hire tax services, as professionals can help ensure all of your finances are in order. But whether you do it yourself or pay for tax services, it’s important to understand the basics of filing taxes. In this article, we’ll explain why filing taxes is crucial, what information you’ll need to gather, which tax form can be most challenging, and whether to file taxes yourself or hire a professional.
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The Importance of Filing Taxes and Hiring Tax Services
Paying taxes is a civic duty, and avoiding it can lead to steep penalties and possible legal consequences. To ensure your financial stability, it’s essential to pay your taxes on time. While the process may be tiring, it’s crucial to start preparing for tax day in advance.
Late tax payments result in penalties, primarily the failure-to-file penalty. You’ll pay an additional 5% of the amount owed, and each month you’re late, you’ll pay an additional 5% up to 25%. If you file 60 days late, you’ll owe 100% of the taxes owed or $135.
If you file your taxes but fail to pay them, you’ll face the failure-to-pay penalty, which can go up to 25%. Interest is also added to unpaid taxes, so it’s critical to start preparing early.
Details and Information You’ll Need to Gather
Whether you file taxes yourself or hire a tax service, you’ll need to gather several details, including personal information like social security numbers or tax ID numbers for you, your spouse, and dependents. You’ll also need W-2 forms to show how much you earned and taxes paid, 1099 forms, property taxes, mortgage interest, bank statements, retirement account contributions, education and classroom expenses, state and local taxes paid, previous year’s federal and state tax returns, and charitable donations.
Form 1040 is the most important form, reporting your income to the IRS, allowing you to claim deductions and credits, and calculating your tax bill and refund. The form collects basic personal information and requires you to state your filing status and dependents. You’ll then calculate your taxable income, subtract eligible tax credits, and subtract taxes paid through your salary. If your tax credits and withholding taxes cover the bill, you’re done. If not, you’ll have to pay the amount owed, and if you paid more than you owe, you’ll receive a tax refund.
Schedules on Form 1040
The schedules are the most confusing part of Form 1040. Everyone needs to use the basic form, but if you want to claim additional deductions or credits, you may need to file one of the following schedules:
- Schedule 1 for additional income or adjustments to income, including alimony, student loan interest, farm income, rental income, or gambling winnings.
- Schedule 2 if you owe alternative minimum tax or excess advance premium tax credit repayment.
- Schedule 3 if you want to claim a foreign tax credit, dependent care expenses, general business credit, or an education credit.
- Schedule 4 if you owe Medicare taxes, self-employment taxes, or net investment income taxes.
- Schedule 5 if you need a tax extension or want to claim refundable credit not linked to earned income, child, or American Opportunity tax credit.
- Schedule 6 for foreign addresses or when someone else is handling your tax return with the IRS.
DIY or Hire a Professional for Tax Services?
When it comes to tax services, the decision to DIY or hire a professional can be a tough one. While hiring a professional can be the easiest option, it may not always be the most cost-effective. On the other hand, doing your taxes yourself with tax software is cheaper and can save you time, but only if your tax situation is relatively simple.
If your tax situation is straightforward and you have little money to spare, DIY with tax software may be your best bet. The IRS also offers free filing programs for those with incomes below $66,000. However, if you’ve experienced errors in past returns, filing taxes is too time-consuming or confusing, or your tax situation is complicated, it’s best to seek professional tax services. Although this can cost upwards of $150, it’s well worth it for the peace of mind that comes with knowing your taxes are done right.
There are different types of professional tax services available. Enrolled agents have a wealth of experience and can handle a variety of tax issues, making them ideal for businesses or those with complicated tax situations. Certified Public Accountants (CPAs) are useful for tax preparation and planning, and must undergo continuous education and training. Tax attorneys are generally hired for complex or serious tax issues, though the average person may not need one.
In conclusion, the decision to DIY or hire a professional tax service ultimately depends on the complexity of your tax situation and your budget. If you decide to go it alone, tax software can help you save time and money. But if you’re dealing with a complicated tax situation, errors in past returns, or legal implications, it’s best to seek the help of a professional. Whatever your choice, starting early, gathering necessary information, and filing accurately and on time is key to a stress-free tax season.
Tax Laws Can Vary by State
When it comes to filing taxes, it’s important to be aware that tax laws can vary by state. Here are some key things to keep in mind:
State income tax
Not all states have an income tax, and the rates and rules for those that do can vary widely. It’s important to be aware of the income tax laws in your state and how they may affect your tax return.
- Seven states have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.
- Tennessee and New Hampshire tax only interest and dividends, not earned income.
Sales tax rates also vary by state and can even differ within a state, depending on local regulations. Make sure you understand the sales tax laws in your state and keep track of your purchases and receipts.
- Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.
- California has the highest statewide sales tax rate at 7.25%.
Property taxes are also determined by the state and can vary widely depending on the value of your property and the area you live in. Be aware of the property tax laws in your state and understand how they may affect your tax bill.
- New Jersey has the highest property tax rate in the US, at 2.44% of the property value.
- Hawaii has the lowest property tax rate in the US, at 0.27% of the property value.
In conclusion, it’s important to be aware of the different tax laws that can vary by state. Make sure you understand the income tax, sales tax, and property tax laws in your state, and keep track of your finances accordingly to ensure that you are prepared for tax season.