The IRS calls for a tax season every year to collect taxes on all levels including federal, state and local. To prepare ourselves better for the tax season, let’s gloss over all things we need to know about taxes in 2021.
·Tax Liability
Tax liability is the total amount of tax debt owed by an individual, corporation, or other entity to a taxing authority like the Internal Revenue Service <www.investopedia.com/terms/i/irs.asp> (IRS). Tax liabilities are incurred when income is earned, there is a gain on the sale of an asset, or another taxable event occurs.
It must be noted that an individual’s or corporation’s tax liability doesn’t only include the current year but also the previous years for which taxes are owed. That means that if there are back taxes <www.investopedia.com/terms/b/back-taxes.asp> due, those are added to the tax liability as well.
Your total tax liability is the total amount of tax you owe from liabilities like income tax, dividend tax, capital gains tax, self-employment tax, and any penalties or interest. We further discuss some of these notable tax liabilities.
·Income Tax
*Income tax* is *a* type *of tax* that governments impose on *income* generated by businesses and individuals within their jurisdiction. By law, taxpayers must file an *income tax return* annually to determine their *tax* obligations.
·Capital gains tax
The capital gains tax <www.thebalance.com/capital-gains-tax-guide-for-investors-357401> is a government fee on the profit made from selling certain types of assets. A capital gain is calculated as the total sale price minus the original cost of an asset.
·Dividend Tax
A *dividend tax* is a *tax* imposed by a jurisdiction on *dividends* paid by a corporation to its shareholders (stockholders). A dividend tax rate is applied based on the income made.
These various types of taxes have to be strategically planned and sorted to negate all possible tax related mistakes. This is where tax planning strategies come handy.
·Tax Planning strategies
Tax payers can strategically plan their taxes every year and perhaps save much more than if taxes were unplanned. Various refunds are missed out on without tax planning. These mistakes can be reduced by using some of these below mentioned tax planning strategies-
1.Understanding your tax bracket
2.Tax deductions and tax credits
*3.*Knowing what tax records to kee*p*
*4.*Health Accounts**
*5.*Estate and Inheritance Tax Planning**
To add to the various forms and processes that are involved in tax preparation, the repercussion for a tiny discrepancy is an IRS tax audit.
·Tax Audit
Smallest of discrepancies found in one’s tax returns can invite a tax audit from the IRS.A tax audit is when the IRS decides to examine your tax return a little more closely and verify that your income and deductions are accurate.
Once the Audit process is done, there are three possible outcomes-
1.If the IRS is satisfied with the documentation you provide, then it will not change anything on your tax return.
2.If the IRS proposes changes to your tax return, you can either agree and accept the changes or challenge the agent’s assessment. If you agree, you will sign an examination report or forms provided by the IRS and agree upon some type of payment arrangement.
3.If you disagree with the findings, you can set up a conference with an IRS manager to further review your case or you can request a formal appeals conference.
Not only raises the stakes this season but also raises the alarm that we need to get our taxes done from the best tax preparers near you, with the optimum qualifications.
·Tax Preparers
With the requirement of professional tact and experience that comes with tax preparation, tax preparers are what we need this tax season in2021. A tax preparer is an individual who prepares, calculates, and files income tax returns on behalf of individuals and businesses. There are several different types of tax preparers, with some having credentials issued by third-party organizations while others are non-credentialed preparers.
Tax software is a type of computer software designed to help individuals or companies prepare for and file income, corporate and similar tax returns. With some training and practice, tax softwares help us to calculate and file our taxes with ease.
Various softwares for tax preparers are available in the market for use. Individuals as well as tax preparers can use softwares like-
1.Tax Softwares
2.TurboTax
3.H&R Block
4.TaxAct
Choosing the correct tax preparer for you is essential to make sure that your tax returns are accurate. Inaccuracy in tax returns is not only illegal by law but also results in potential losses to the individual and to the company. Tax related problems can also be resolved by certain professionals other than tax preparers.
·Tax Resolution
Tax resolution is the process of working with the IRS and tax professionals to find a solution to your tax problems. The IRS might have an issue with your tax return or tax situation in a few instances like to verify you are reporting the appropriate amount of income and claiming legitimate deductions. Such cases call for tax resolution. Some exact instances when you might use tax resolution services include:
1.Audit Representation
2.Transcript Protest
3.Non-Collectible Debt
4.Tax Penalties
5.Compromising With The IRS
Like the second chance that is provided to the tax payers to resolve their tax problems, the IRS too helps the tax payers using various policies.
·Tax Extension
A filing extension is an exemption that can be opted by either individual taxpayers or businesses that are unable to file a tax return by the due date. Some states accept IRS extensions, but others require taxpayers to file a separate state extension form.
Though tax extensions allow you longer time to file your taxes, it is often assumed that this might allow you a delay in the payment of the said taxes too, though that is not the case. Here are some basic points about Tax Extension to remember-
* An extension of time to file your return does not grant you any extension of time to pay your taxes. * You should estimate and pay any owed taxes by your regular deadline to help avoid possible penalties. * You must file your extension request no later than the regular due date of your return.
·Tax relief is any government program or policy that is implemented by the government to reduce the amount of taxes paid by individuals or businesses. It may be a universal tax cut or a targeted program that benefits a specific group of taxpayers or bolsters a particular goal of the government. Tax relief is intended to reduce the tax liability of individuals or businesses.
·An individual or business entity typically gets tax relief through tax deductions, credits, or exclusions, and by the forgiveness of a loan.
The IRS is also compassionate towards the various unforeseen economical setbacks faced by the tax payers. Policies like tax refunds, stimulus checks, etc, are provided for the same.
·Stimulus Check
A stimulus check is a check sent to a taxpayer by the U.S. government. Stimulus checks are intended to stimulate the economy by providing consumers with some spending money. When taxpayers spend this money, it drives revenues at retailers and manufacturers and thus spurs the economy as the taxpayers too enjoy the benefits. Stimulus checks are thus a win-win situation for all tax payers eligible.
The Tax preparation system is a well oiled chain which works when dealt with extreme care and professionalism. The tax experts at the National Tax Preparers of America (NTPA) will ensure a tax season full of savings with no hassles for you.
