It pays to listen to the tax pros if you want a smooth and painless filing.
Between now and April 15, as you start preparing your taxes, the best thing you can do for your wallet is think about how you can make life easier for your tax preparer.
Another way to put it: You can present your preparer with a pile of unorganized receipts and get through the process painfully, or you can do some preparation and make everyone happy. Here are some thoughts, suggestions and requests from tax preparers on what they wish taxpayers would do when putting together their tax paperwork. It's also good advice to follow if you're doing your own taxes.
Americans spend an average of $261 to get an itemized federal and state tax return done. Check out these tips to get free help with your return this year.
This post comes from Allison Martin at partner site Money Talks News.
Tax season is upon us, and tax return preparers have already opened their doors to those looking to be the first to file when the Internal Revenue Service begins accepting returns on Jan. 31.
But professional tax preparation can come at a hefty price. The National Society of Accountants says the average cost to prepare a 1040 tax form with itemized deductions and a state tax return is $261, while the cost of preparing a non-itemized 1040 and state return is $152.
Looking to save money on tax return preparation this year?
The agency is under fire for probing the tax-exempt status of conservative groups.
The Federal Bureau of Investigation doesn't plan to file criminal charges over the Internal Revenue Service's heightened scrutiny of conservative groups, law-enforcement officials said, a move that likely will only intensify debate over the politically charged scandal.
The 1099-C, which comes to taxpayers who have settled debts in the past year, can be scary. But it's possible the form was sent by mistake or that you don't have to pay.
This post comes from Christine DiGangi at partner site Credit.com.
If you settled an outstanding debt in 2013, you may have more paperwork to fill out.
Creditors who forgive debts of $600 or more are required to file a Form 1099-C Cancellation of Debt, because the Internal Revenue Service says you must include canceled debt in your gross income. You then have to pay taxes on that so-called income, unless you qualify for an exception.
"Getting a 1099-C to pay taxes on a debt you couldn’t pay in the first place is terrifying," said Gerri Detweiler, Credit.com director of consumer education. "If you couldn’t pay the debt, what makes the IRS think you can pay the taxes?"
Understanding the 1099-C
The IRS estimates more than 5.7 million 1099-C forms will be filed for tax year 2013 (some consumers may receive more than one), but not everyone with a canceled debt receives one.
Regardless, you still need to deal with the form if you’ve settled debt for less than you owed, sold your home in a short sale for less than it was worth, went through foreclosure on a home worth less than what you owed on it, or if you didn’t pay anything on a debt for at least three years and there was no collection activity in the past 12 months.
Thanks to 2013's government shutdown, the IRS will not start processing returns until Jan. 31. If you want your refund as soon as possible, there are ways to submit your forms early.
Most taxpayers get refunds every filing season. Last year, the average federal tax refund was $2,651.
That's a nice chunk of change, so it's no surprise that the millions of folks who expect money back from Uncle Sam tend to file in January.
It's also no surprise that this year these early filers are upset that they have to wait until Jan. 31 for the Internal Revenue Service to start processing tax returns. The delay is due to the federal government shutdown back in October, which slowed down the agency's updating of forms and testing of its computer systems.
Some taxpayers, however, aren't waiting. They are getting a head start on their tax return preparation so they'll be at the head of the line when the IRS does open its electronic filing doors on Jan. 31.
And popular tax preparation software and franchise tax offices are helping these filers.
Free File's income eligibility limit has been increased to $58,000 -- $1,000 more than last year.
Taxpayers who want to take advantage of the Internal Revenue Service's free tax preparation e-filing program won't have to wait. The Free File program opens to taxpayers on Jan. 17, two weeks before the IRS starts processing 2013 tax returns.
The IRS will not start processing any tax returns until Jan. 31. The government shutdown in October 2013 slowed IRS updates of forms and tests of its computer systems, leading officials to push the official opening of this year's filing season to the end of the month.
But that doesn't mean taxpayers have to sit around. Free File companies will hold taxpayers' completed tax returns and then submit them on Jan. 31.
The early opening of Free File is good news for millions of eligible taxpayers. They are among the group of electronic filers, which increases every year, primarily because they can get their refunds more quickly.
And for the 2014 filing season, a few more taxpayers should be able to use the Free File option. The income eligibility limit has been increased to $58,000. That's $1,000 more than last year.
Estimated tax payments are usually required if you meet certain criteria.
I have a full-time job, but I also did some contract work last fall and got a check ($5,700). I know I need to pay taxes on that income, but I am not sure if I need to pay estimated taxes right now or if I can wait until I file my tax return in February. Should I just increase my withholding on my part-time job until then? Does it make sense to increase withholding or pay estimated tax? -- Jessica
Since you have a full-time job that withholds taxes, at the end of the year your employer reports your income and withholding on a Form W-2. When you do "contract work," this type of income is not subject to withholding and in January you will receive a Form 1099 reporting the amount of income you received.
Before you start preparing your 2013 tax return, review these important updates.
Time marches on, and you'll soon be receiving your 2013 W-2 and 1099s. So it's not too soon to start thinking about putting together your Form 1040 for last year. As you do, please take note of the following key federal income tax changes that took effect in 2013.
New higher tax rates for upper-income individuals
For most individuals, the 2013 federal income tax rates are the same as for 2012: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent. However, the American Taxpayer Relief Act (ATRA) increased the maximum rate for 2013 to 39.6 percent. That rate only affects singles with taxable income above $400,000, married joint-filing couples with income above $450,000, and heads of households with income above $425,000.
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