Tax Tips
Here are some of the steps you can take to save money
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Understanding Your W-4 and Filing Status: Key to Your Tax Outcome
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How you complete your W-4 form plays a significant role in determining whether you receive a refund, break even, or owe taxes when filing your return. Several factors can affect your paycheck size or tax liability, including your filing status, business structure, and record-keeping practices.
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For Small Business Owners and Self-Employed Individuals:
Being a small business owner or self-employed (including those who receive 1099-MISC forms) involves more than just offering great products or services. You must be diligent about your business structure, record-keeping, and accurate reporting. Staying organized can help you avoid unexpected tax liabilities and maximize savings. -
Filing Status Options:
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Single: Typically for taxpayers who are unmarried, divorced, or legally separated under a state-issued decree.
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Married Filing Jointly: Married couples can file a joint tax return. If one spouse passes away, the surviving spouse may file jointly for that year.
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Married Filing Separately: Couples may choose to file separately, which may reduce tax liability in some cases.
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Head of Household: This status applies to unmarried taxpayers who have paid more than half the cost of maintaining a home for themselves and a qualifying person for at least half the year.
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Qualifying Widow(er) with Dependent Child: This status applies if a spouse passed away within the last two years, and the taxpayer has a dependent child.
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If you need help determining your filing status or completing your W-4, please schedule an appointment by clicking the icon.
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Being informed about these factors can help you manage your tax situation more effectively.
More Information for:
W2 Employee
1099 | Self Employed
The Importance of Proper Record-Keeping for Tax Preparation
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1. Identify Sources of Income
Taxpayers may receive income from various sources, such as wages, self-employment, investments, or gifts. Proper records help distinguish between business and non-business income, as well as taxable and non-taxable income. Keeping detailed records ensures that all income is reported correctly and helps avoid errors or omissions. -
2. Track Expenses
Maintaining thorough records of expenses is essential for claiming deductions. This helps taxpayers decide whether to itemize deductions when filing, as well as uncover potential overlooked deductions or credits that could reduce their tax liability. -
3. Prepare Tax Returns
Good record-keeping simplifies the process of preparing tax returns. By adding tax documents to your files throughout the year, you can quickly and accurately file your return. This organized approach reduces stress during tax season and ensures you don’t miss any important details. -
4. Support Tax Returns
Well-organized records provide the necessary backup for the items reported on your tax return. In case your return is selected for an audit or you receive an IRS notice, having these records readily available will help you respond promptly and accurately. -
Staying organized throughout the year helps you save time, reduce mistakes, and maximize potential tax benefits.
Essential Records for Tax Preparation and Filing
Proper record-keeping is critical for ensuring accurate tax reporting and maximizing potential deductions. The following categories of records are key for both individuals and business owners:
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1. Tax-Related Records
This includes wage and earnings statements from all employers or payers, such as Form W-2, 1099-K, 1099-MISC, and 1099-NEC. For self-employed individuals or those receiving income through payment apps or cards, these forms are essential. You should also keep interest and dividend statements from banks, government payments (such as unemployment compensation), other income documents, and records of virtual currency transactions. Retain receipts, canceled checks, and other supporting documents for income, deductions, or credits reported on your tax return. -
2. IRS Letters, Notices, and Prior Year Tax Returns
It’s important to keep copies of prior year tax returns, as well as any IRS letters or notices you receive. These may include adjustment notices related to actions on your account, which are crucial for maintaining a clear history with the IRS. -
3. Property Records
If you sell or dispose of property, retain the records related to the transaction. These records are necessary to determine the gain or loss when calculating your tax liability, particularly for capital gains or losses. -
4. Business Income and Expenses
For business owners, maintaining accurate records of business income and expenses is essential. Establish a reliable bookkeeping system that reflects your gross income and expenses clearly. If you have employees, you must also retain employment tax records for at least four years, ensuring compliance with IRS requirements. -
5. Health Insurance Records
Keep records of health insurance coverage for yourself and your family members. If you’re claiming the Premium Tax Credit, you’ll need documentation of any advance credit payments received through the Health Insurance Marketplace, along with the premiums you paid.
By organizing and maintaining these records throughout the year, you’ll make it easier to file your tax return, support your reported figures, and respond to any IRS inquiries or audits. This proactive approach helps minimize errors, ensure compliance, and maximize potential tax savings.
What are some of the factors that Create a refund, break even or create a balance.
Step 1
This section is meant for your personal information
Name
Address
Social Security Number
Tax Filing Status (Single, Married filling Jointly, Qualifying Widow(er) or Head of Household
Step 2
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Account for All Jobs and Income
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Include all jobs you and your spouse have.
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Use this section to account for self-employment taxes in addition to income taxes.
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If you have multiple jobs in your household, use the worksheet attached to the W-4.
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Not accounting for untaxed income can result in a balance due (leading to taxes owed).
Step 3
Claiming Dependents
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Children under age 17: $2,000 per child
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Other dependents: $500 each
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Only one taxpayer can claim a dependent (Married Filing Jointly, Head of Household, or Married Filing Separately).
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Increasing the number of dependents not claimed may result in taxes owed.
Remember
It’s important to report all employment for both you and your spouse, including self-employment income and taxes, use the W-4 worksheet if you have multiple jobs in your household, and ensure all untaxed income is accounted for to avoid a balance due when filing your tax return.
Important Documents you will need to file your taxes (not all documents may apply to you)
Small Business / 1099 Misc / Self Employed
As a small business owner, 1099-MISC (NEC) earner, or self-employed individual, taxes are not automatically withheld from your income, which is why you may owe taxes if your business is profitable. However, you can deduct business expenses to lower your taxable income, a benefit not available to W-2 employees. Many small businesses end up owing more than they should due to poor record-keeping, so it's essential to stay organized. The rule of thumb is: if you don’t have records or receipts to prove an expense, "it didn’t happen" and you can’t deduct it.