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As the April 15 tax filing deadline approaches, it's important to separate fact from fiction when it comes to preparing your returns. "Tax laws are often summarized for [the] sake of quickly explaining a potential benefitāor conflict," says Andy Phillips, Vice President of H&R Blockās Tax Institute. "When details are omitted, itās easy to misinterpret law or consider the advice of a trusted friend versus taking time to do firsthand research." Blindly following someone elseās bad tax advice could cost you precious time and money.
The figures listed on your last paycheck stub may be close to what will be released on your W-2, but itās not guaranteed that the numbers are always right. Plus, as Phillips explains, this is technically not allowed. "Your last pay stub is not considered an IRS-recognized document for filing. Itās common for calculations to be slightly off throughout the year and not be accounted for until end of year. Payments such as bonuses and commissions can easily be forgotten, and no one enjoys the process of filing an amended return."
Phillips' advice: Wait for your employer-prepared W-2. He adds that you should "be wary of return preparers who advertise paystub filing, which is against the rules." The employer should have issued your W-2 by Jan. 31 at the latest.
If you receive any form of unemployment benefits either from the city, state, or federal level, then thatās considered income. All income should be reported on your tax return. Unemployment benefits paid are typically reported with a Form 1099-G. This form functions similarly as a W-2, outlining how much you were paid and if taxes were withheld.
Of course, giving without the expectation of repayment is an admirable gesture. However, Phillips notes that only charitable gifts and donations made to IRS-qualified tax-exempt institutions are tax-deductible. Typically, a receipt is provided when a tax-deductible gift is received. If you recently made a donation and are unsure if your donation was made to a qualifying organization, use the Tax Exempt Organization Search Tool located on the IRS website. Furthermore, you must itemize to deduct charitable contributions, meaning those claiming the standard deduction are not able to deduct those donations even if made to a qualified organization.
With the rise of remote work in the last few years those that work from home may think they can claim the home office deduction. Unfortunately, as Phillips explains, if you are an employee, you cannot claim the deductionāthe deduction for employee business expenses was suspended beginning in 2018. On the other hand, if you are self-employed and have a home office it is likely that you can claim the home office deduction.
As I wrote last week, certain tax "loopholes" may go viral, but that doesn't mean they're good for your specific tax situation. All across social media, I see creators telling people they can claim tax benefits that are either nonexistent or that theyāre not eligible for. Philips concurs: Taxpayers should exercise caution when relying on claims made on social media and should ensure they only use reliable sources when making tax decisions.
Unfortunately, an extension of time to file does not give you more time to pay. Phillips says that "you should try your best to pay your estimated balance due when you request an extension." If you canāt pay, filing a tax return is the first crucial step to determine your eligibility to enroll in an IRS-approved installment payment plan.
As Phillips explains, neglecting to file on time subjects you to a failure-to-file penalty, which starts at 5% of your unpaid taxes per month, up to five months. If the return is more than 60 days late, a minimum penalty applies. For this year, the minimum penalty is the lesser of 100% of the unpaid tax or $510.
On the other hand, the penalty for just failing to pay is only 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid.
"This is why itās so important to file a return, even if you cannot pay the full amount due," Phillips urges. As long as you file, these penalties combined wonāt exceed 25% of your unpaid taxes. Phillips also notes that interest also begins to accrue after the due date on the amount you owe IRS.
By steering clear of these common tax myths, you can avoid costly mistakes and headaches this filing season. As always, it's best to consult a qualified tax professional who can look at your specific situation and give you legitimate, tailored advice.
Full story here:
"I can file my tax return with the details from my last paycheck stub."
The figures listed on your last paycheck stub may be close to what will be released on your W-2, but itās not guaranteed that the numbers are always right. Plus, as Phillips explains, this is technically not allowed. "Your last pay stub is not considered an IRS-recognized document for filing. Itās common for calculations to be slightly off throughout the year and not be accounted for until end of year. Payments such as bonuses and commissions can easily be forgotten, and no one enjoys the process of filing an amended return."
Phillips' advice: Wait for your employer-prepared W-2. He adds that you should "be wary of return preparers who advertise paystub filing, which is against the rules." The employer should have issued your W-2 by Jan. 31 at the latest.
"Being unemployed means I donāt have to pay taxes."
If you receive any form of unemployment benefits either from the city, state, or federal level, then thatās considered income. All income should be reported on your tax return. Unemployment benefits paid are typically reported with a Form 1099-G. This form functions similarly as a W-2, outlining how much you were paid and if taxes were withheld.
"Any money that I give counts as a charitable contribution."
Of course, giving without the expectation of repayment is an admirable gesture. However, Phillips notes that only charitable gifts and donations made to IRS-qualified tax-exempt institutions are tax-deductible. Typically, a receipt is provided when a tax-deductible gift is received. If you recently made a donation and are unsure if your donation was made to a qualifying organization, use the Tax Exempt Organization Search Tool located on the IRS website. Furthermore, you must itemize to deduct charitable contributions, meaning those claiming the standard deduction are not able to deduct those donations even if made to a qualified organization.
āIf I work from home I can take a deduction for my home office.ā
With the rise of remote work in the last few years those that work from home may think they can claim the home office deduction. Unfortunately, as Phillips explains, if you are an employee, you cannot claim the deductionāthe deduction for employee business expenses was suspended beginning in 2018. On the other hand, if you are self-employed and have a home office it is likely that you can claim the home office deduction.
āThis social media post told me that I can claim ...ā
As I wrote last week, certain tax "loopholes" may go viral, but that doesn't mean they're good for your specific tax situation. All across social media, I see creators telling people they can claim tax benefits that are either nonexistent or that theyāre not eligible for. Philips concurs: Taxpayers should exercise caution when relying on claims made on social media and should ensure they only use reliable sources when making tax decisions.
"A tax filing extension gives me more time to pay my balance due."
Unfortunately, an extension of time to file does not give you more time to pay. Phillips says that "you should try your best to pay your estimated balance due when you request an extension." If you canāt pay, filing a tax return is the first crucial step to determine your eligibility to enroll in an IRS-approved installment payment plan.
As Phillips explains, neglecting to file on time subjects you to a failure-to-file penalty, which starts at 5% of your unpaid taxes per month, up to five months. If the return is more than 60 days late, a minimum penalty applies. For this year, the minimum penalty is the lesser of 100% of the unpaid tax or $510.
On the other hand, the penalty for just failing to pay is only 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid.
"This is why itās so important to file a return, even if you cannot pay the full amount due," Phillips urges. As long as you file, these penalties combined wonāt exceed 25% of your unpaid taxes. Phillips also notes that interest also begins to accrue after the due date on the amount you owe IRS.
By steering clear of these common tax myths, you can avoid costly mistakes and headaches this filing season. As always, it's best to consult a qualified tax professional who can look at your specific situation and give you legitimate, tailored advice.
Full story here:
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