You should prepare ahead of time for the tax season to make sure that you do not mess up anything. And if you have gone through any life-changing situation, you should understand that these changes will have a significant impact on how much you owe to the IRS. Many go through financial changes, such as a promotion, losing a job, getting married, and more, and no matter whether they are positive changes or negative ones, it will have an impact on how much you owe. All of these may sound confusing to you; therefore, it is advised to look into Tax Preparation Services, and let the experts help you out. Nevertheless, let’s look at the common changes that can affect how much you owe to the IRS:
Income Changes: Changes in income are a common thing that people go through, whether they experience a hike or a decrease. so, if you have had a significant change in your annual income as compared to the previous year, you will see some changes in the taxes that you owe. If you have gotten a hike, and you qualify for a higher tax bracket, you should be aware of the additional cost that you have to pay for filing the tax return.
Unemployment: One common thing that we have seen last year is people losing jobs due to the pandemic. This means that there will be an increased number of people filing for unemployment. These unemployed individuals are eligible to receive a subsidized income, but this does not mean that the amount is not taxable. If you have been receiving the benefit, you will have to take the required steps to make sure that the unemployment compensation that you are receiving will be accounted for by the IRS, since they are considered as taxable income.
Withdrawing Funds From Retirement Account: Yes, the past year has been a struggle for a lot of people, and many have struggled to meet their ends. This means that many may have decided to take a risk and withdraw funds from their retirement account. And this probably means that you will owe income taxes on the withdrawals that you have made. However, in the last year 2020, the lawmakers instituted a law under CARES Act that allows citizens to withdraw some amount from their retirement account without any penalty. However, it means that they have to pay back the withdrawn balance within three years.
Student Loans: Under the CARES Act, there was another additional component that allowed federal student loan recipients to put a hold on their payments while reducing the interest rate to zero percent. However, this CARES Act policy is only efficient for the year 2020, so do the needful. So, when you are preparing for the tax season, it is important to know whether you can write off student debt in your taxes.
Do This, If You Owe Money: If you owe money to the IRS, you should follow these steps: first off, do not delay your taxes, always file on time. Do not accumulate the bill, pay as soon as possible to avoid interest and fees. You can also file for a short-term payment plan, which will charge some fees and interests. If you owe a lot, you should consider filing a long-term payment plan that can last for years, as it will probably be the best plan for you.
When you are filing for taxes, to get the best out of it, it is recommended that you work with a professional tax preparer. This is important as they are aware of the current tax regulations and they will guide you through the process with professionalism.