The IRS began to accept tax returns on January 24 and has already sanctioned nearly 38 million refunds as of March. An average of almost $3401 has been refunded through March 4.
If you are a resident of the US and are hustling with your tax returns, you have come to the right place. Although the process is challenging and some may find it complicated, eFiling for individuals is a more straightforward, faster, and safer means to file tax returns.
Individuals can use eFiling for both federal and state taxes. The federal and state government has separate software that allows individuals to file their taxes electronically and send them to the government.
Continue reading to learn more about eFiling, why should you consider it over in-person filing, its benefits and how we, at AOTAX can help you.
Reasons to Use eFiling for Tax Returns this Season
Taxes can be filed in many ways: some fill out Form 1040 or Form 1040-SR by hand and mail it. However, many find it convenient to hire a tax preparer to file the returns, which may be expensive.
The most straightforward way to file taxes is through eFiling using filing software. Here are some perks of eFiling for individuals:
Ease of use and flexibility
When filing taxes manually, one has to fill them out in person and mail it to the government or walk into the tax return office during 9-5 working hours to get it done.
With eFiling, individuals can file tax returns at home at any time. This is more convenient and flexible for many who do not have the liberty to take time off to go to the office or send the forms over mail.
Saving time and money
Efiling tax returns directly send your data to the server systems of the IRS immediately. This eliminates the need for sending mail to the IRS, which can take days.
This also eliminates any transmission errors or unprecedented delays, or lags. As a result, eFiling is easier for both taxpayers and tax agencies as it is easier and faster.
Accurate filling
Efiling eliminates errors with record matching, transmission errors, or other manual errors from mailing tax return forms or filing them in person.
This is essential to get maximum returns of taxes.
With eFiling, individuals can upload all the necessary documents and the data and run mathematical accuracy tests to assess if figures are aligned.
Using eFiling software can especially come in handy. The software can help assess typos, check mix-ups, and ensure that the IRS accepts the predicted refund amount and is processed on time.
Reduced data manipulation
Many risks of filing tax returns manually come with data manipulation and window dressing. With eFiling, it becomes impossible to manipulate data. In addition, linking or tracing back the taxpayer also becomes more accessible with eFiling.
One of the reasons e-filing is more safe, according to the IRS, is that your information is never in a hard copy version unless you print it off. Because there is no physical copy, there is less possibility that someone will look at your information when you are not present.
According to Mark Steber, the chief tax information officer at Jackson Hewitt, this also eliminates the risks of tax refund theft and identity theft caused by manual filing.
Authentic and accountable
Efiling has made taxpayers and tax agencies more accountable and authentic. However, the paper filing comes with high ambiguity, leaving taxpayers and tax agencies to treat tax returns with lethargy and negligence.
Efiling comes with frequent and periodic notifications that allow people to know if their tax returns are approved or denied, giving more certainty to the process.
This helps individuals do what is necessary in case of a denied request.
Quicker refunds
A tax expert and certified public accountant said that 9 out 0f 10 tax returns were issued by the IRS within 21 days when filed electronically. In addition, Mark Steber said that eFiling is the fastest and safest way for taxpayers to have their refund directly deposited into their bank account.
With eFiling, most refunds are issued within 21 days either directly to the bank account mentioned in the forms or as a paper check which can take longer.
However, filing tax returns in person can take weeks or even months to reflect in your bank account and can take up to two months to receive a paper check.
Tax experts recommend using eFiling for individuals to file taxes and consider filing them earlier to get faster returns.
Efiling for Individuals with AOTAX
AOTAX has helped many Indians in the USA file their tax returns using eFiling. AOTAX helps its users by filing individual taxes and getting tax drafts within 24 hours of filing. We also help Indian professionals working in the US with eFiling services with high accuracy and success rate.
If this is the first time you’re filing tax returns or if you find it complicated to file them, we can help you create a tax draft, making it more straightforward, fast, and cost-effective to file your taxes. Reach out to us to easily file your taxes electronically with AOTAX.
As tax season nears, you may ask what the alternatives available for filing a tax return are. You have three options to file your tax: filing your taxes, filing using online tax software, or filing by hiring a professional. You must have certain information readily available when filing taxes, no matter which method you select. This article will see how to file your taxes, which options are available, and which tax filing methods are best. But before you start to look for ways to file your taxes, you must know:
Do you even have to file taxes this year?
Your income, tax filing status, age, and other criteria will determine whether you must submit a tax return this year. It also depends on whether or not you can be claimed as a tax dependent by someone else.
Even if you aren’t required to file taxes, you should consider doing so anyway: If you qualify for certain tax credits or have already paid some federal income tax, the IRS might owe you a refund that you can only get by filing a return.
In the early months of the following year, “tax season” for the previous tax year begins. For example, the Internal Revenue Service (IRS) will begin receiving and processing returns for the 2021 tax year on January 24, 2022. Also, due to some public holidays in certain states/districts, the deadline for filing taxes is April 19, 2022.
Choose How to File Your Taxes
You can file your taxes in several ways. Hiring the service of a tax professional, using online tax software, or filling out the forms yourself are the three primary options for tax preparation. Take a closer look at these methods below:
1. Filing taxes online with tax software
You already know how to prepare and file taxes online if you’ve used tax software in the past. Many big tax software companies also provide access to human tax preparers.
For example, some companies provide software or support packages that include on-demand, on-screen, or online access to human tax specialists who can answer questions, evaluate your return, and even file your taxes.
Several tax-preparation companies, including big brands, offer free online tax preparation software under the IRS Free File program. You must have an adjusted gross income of $73,000 or less to be eligible.
2. Hire and work with a tax preparer
With a complicated federal tax code that is more than 74,000 pages long, it’s no surprise that more than half of all taxpayers in the United States need a professional to assist them.
If you choose this method, make sure the tax preparer has a Preparer Tax Identification Number (PTIN) from the IRS, and also ensure you ask about the fees upfront. Please note that the IRS requires your tax return to be filed electronically if your tax preparer submits 10 or more returns in a year.
If you do not wish to meet in person with the tax preparer, in that case, there is another way of filing taxes. You can share documents electronically with a tax preparer via a secure channel. Typically, the preparer will send you a link to the portal, where you will create a password and then submit photos or PDFs of your tax documents.
3. Filing taxes on your own
You can file taxes on your own by downloading and printing the forms from the IRS website, then mailing them with a check if you owe taxes.
Another option is filling out the forms online and submitting the return with a credit card payment. Using the Forms, Instructions, and Publications Search engine, you can find all the federal tax forms. In addition, state income tax forms are usually available on your state’s official website.
There is no cost or fee associated with submitting your taxes. Filing taxes on your own helps you understand and know your financial situation since it compels you to monitor and keep track of your transactions, earnings, and spending.
The majority of people who file taxes on their own have a simple tax status, an unaltered tax situation, or a genuine interest in the topic. If you have the necessary forms on hand, it can take only a few minutes.
If you file a paper return, it can take six to eight weeks to obtain your refund, however, you must submit it by mail in the below cases:
You’re married and live in a community property state but filing a separate return.
Whether you hire a tax preparer or prefer filing taxes on your own, you’ll need to gather tax filing information.
The purpose is to collect proof of income, expenses that may be tax-deductible or qualify you for a tax credit, and documentation of taxes paid during the year.
Social Security numbers for yourself, your spouse, and any dependents, if applicable.
W-2 form, showing how much you earned in the past year and how much taxes you have already paid. (If you worked multiple jobs, you may have received multiple W-2 forms).
1099 forms, record money given or paid by someone other than your employer. That is non-employment income such as dividend income, interest income, etc.
Contributions to a retirement account
Mortgage interest and property taxes
Donations to charity
Local and state taxes you paid
Expenses related to education
Medical bills that have not been reimbursed
Federal and state tax returns from the previous year
Collect Income Data
Getting your tax forms together for you and your spouse is a great start, however, keep in mind that you may have income that isn’t listed on your W-2. Remember to include any income you received over the year, such as:
Money earned through investments
Rental properties
Home businesses
Winnings from the lottery or a casino
Itemized Deductions and Credits
The total amount of taxable income is reduced due to tax deductions. Hence, keeping track of everything you can deduct is necessary. The following are some common deductions:
Child care costs
Education costs
Interest payments on a mortgage
Donations to charity
Most deductions necessitate receipts and other documents, so double-check with your tax expert to ensure you have all you need.
Track of Taxes Paid
Most businesses deduct federal, state, and additional taxes from each employee’s pay. On your W-2 form, these deductions will be detailed. You’ll have to keep your tax records if you’re a contract employee or operate a business.
Significant Life Changes
Important life events might have an impact on your tax return. If you had a life event that the IRS recognized, you may be able to claim additional deductions, such as:
Divorced
Got married
Had a baby
Moved to a new state
Closing Thoughts
The federal tax code is constantly changing. Make sure you discuss how these changes may affect you each year with your tax expert. Proposed tax legislation may have an impact on those in higher tax bands. Make sure you understand these bills significantly if your family’s annual income surpasses $250,000.
With over 15 years of experience, AOTAX is the experienced team you need. AOTAX has managed the finances of a number of Indian IT professionals. We have aided in reducing tax burdens and simplifying tax preparation year-round. So, if you’re going to trust a pro, sign up for free with AOTAX today!
With less than a month to go before the tax filing deadline, taxpayers are steeling themselves for last-minute changes, checks, and balances.
One group of individuals in particular always tend to be groping in the dark when it comes to tax return season. Given the fluidity of their situation, sole proprietors often face many challenges while preparing their tax documents.
Sure, the perks of being your boss are fantastic, but the downsides can be pretty nasty if you’re not well-versed in the taxation side of things. Below, we explore some common problems sole proprietors can face while filing their tax returns and how to overcome them. Read on to know more about the mistakes you should avoid and work around them.
Who are Sole Proprietors?
Before we dive into what they could potentially do wrong, let’s first look into who precisely sole proprietors are and what filing as a sole proprietor entails.
To begin with, sole proprietorships are one of the most common business structures in the US, owing to their flexible structure and potential for easy establishment.
Essentially, there is no difference between the individual and the business for taxation purposes: The IRS considers the business owner a legal business entity and an individual.
Individuals can receive the entirety of their business profits but are also equally liable for all debt and expenses incurred by the business. Business income passes through the business to the business owner, who then reports on their tax returns. This drastically reduces paperwork but can often complicate matters if figures are not declared correctly.
Additionally, sole proprietors are likely to be individuals whose professions allow them to either work remotely or require traveling to customers.
This entity is typically devoid of the traditional ‘brick-and-mortar’ structure. Typical professions that may fall under sole proprietorship include:
Professional cleaners/organizers
Home healthcare service providers
Freelancers (content creators, photographers, web developers, etc.)
Business consultants or public speakers
What Problems Do Sole Proprietors Face?
Sole proprietors have to be extra careful about handling tax obligations, especially since the consequences could be an IRS audit or simply leaving money on the table.
Common issues include:
1. High tax bills and low refunds
Most self-employed taxpayers tend to lose out on sizable refunds and the opportunity to lower their tax bills. This is simply because sole proprietors are unaware of the deductible expenses they can claim against their income.
Running one’s own business can be challenging enough, so having to pay hefty tax bills shouldn’t be another burden that sole proprietors take on.
It is advisable to keep accurate and detailed records of all expenditures and maintain separate checkbooks for business and individual purchases. Doing so can simplify providing proof of deductible expenses and significantly lower one’s taxable income.
Common deductible expenses include:
Start-up costs: includes operational costs and expenses incurred to get the business up and running, such as repairs, advertising, and purchasing supplies.
Transport and automobile costs: money spent on keeping a vehicle roadworthy, especially helpful if one’s business is dependent on traveling by cars, such as bakery and parcel-delivery businesses.
Insurance premiums: expenses incurred while covering oneself and one’s workspace from possible losses.
Legal and professional fees: money spent on hiring financial and legal consultants for their expertise in the field.
Educational fees:particularly useful for business owners that have attended classes that foster professional development in their field.
2. Increased risk of penalty charges
No taxpayer wants trouble with the law, especially not with the IRS regarding taxation and discrepancies in the amounts filed.
Sole proprietors are exposed to a higher risk of paying penalty fees since other taxes mustbe paid over and above income and personal taxes.
Being aware of these taxes and their payment deadlines is critical to keeping everything kosher in tax documentation.
Sole proprietors should watch out for the following taxes:
Federal and State estimated taxes:sole proprietors are responsible for estimating their annual tax bill for all income earned and making quarterly payments to the IRS.
Federal and State income taxes: sole proprietors must accurately declare all business profits and losses and any other personal income. Business owners should be aware that their tax bracket is decided based on both personal and business income and must be prepared to pay taxes accordingly.
Self-employment taxes: sole proprietors needn’t wait for traditional employers to withhold portions of their income for FICA contributions. Instead, they should be making these Medicare and Social Service contributions while paying their taxes.
3. Delays in refunds & problems with incomplete tax documents
It’s no secret that backlogs inundate the IRS, but processing times are worsened by a lack of ‘open and shut cases. In addition, going back and forth with taxpayers about errors in their forms, missing documents, and invalid proofs makes life difficult for both parties.
To ensure that you present a textbook tax filing case, you must submit all required forms and documents and triple-check every information you’ve provided—right down to crossing your I’s and dotting your T’s. Silly errors and forgetfulness can delay refunds, which can be avoided by being well-prepared.
Sole proprietors must submit the following documents:
Schedule SE: must be submitted if your business earned more than $400 worth of revenue
Form 1040, Schedule C: provides details about business income, expenses, and inventory.
With close to 20 years in the business of helping Indian residents in the US file their taxes effortlessly,AOTAX is primed to answer all your questions and get you the best return possible.
We make sure you consult with some of the best tax professionals in the business to help you plan and prepare for tax season without worrying about a possible audit from the IRS.
Being the owner of a small business is an exciting experience. You are the captain of your ship, and you have complete control over when and how you set sail.
However, as the April 15 tax deadline approaches, your confidence may fade, given the unfamiliarity with US tax laws. As a result, filing your taxes as an Indian who owns a sole proprietorship in the United States might be stressful.
This article will show you how to avoid such eight blunders while filing as a sole proprietor and do your taxes swiftly.
Who is a Sole Proprietor?
A sole proprietor is an individual who owns and operates their own business. For instance, you are a sole proprietor if you work as a freelance writer. However, you must obtain the necessary licenses and permits by industry standards. Your business income is your income, and you are responsible for paying taxes.
Eight Pitfalls to Avoid While Filing as a Sole Proprietor
If you are a sole proprietor, you’ll need Form 1040 to pay your taxes and declare your earnings on Schedule C. Self-filing taxes might be intimidating. However, it’s much more daunting if you file as a sole proprietor.
We have compiled a list of eight common blunders sole proprietors make while filing taxes:
1) Ignoring quarterly tax payments
In the United States, businesses must pay estimated taxes every quarter. The IRS will penalize you if you wait until April 15 to pay the taxes in full.
As a result, it is more prudent to account for your profit and loss and pay your taxes every quarter. You can withhold a portion of your business income as taxes each month and send the IRS a quarterly tax payment.
2) Failure to meet tax deadlines
If you fail to pay your taxes on time, you will be subject to a penalty of 5% of your monthly taxable income. Furthermore, the IRS has the authority to fine you up to 25% of your total tax bill.
They can also charge you a 0.5% late fee for each month you don’t pay after the deadline. Request a personal tax extension if you are unable to meet the deadline. However, you must pay a portion of the outstanding balance by the initial date.
3) Cheating on your tax bills
According to an IRS survey of 2001, sole entrepreneurs underreported $68.5 billion in business income. As a result, you must provide an accurate tax estimate while filing as a sole proprietor.
If you earned more than $600 in the current fiscal year, the company that paid you is obligated to send you a 1099-MISC form and your paycheck.
They also provide a copy of the same to the Internal Revenue Service. As a result, you must accurately disclose your earnings to the IRS. Even if you don’t receive the 1099-MISC from the client or if it’s incomplete, make sure it’s updated before the tax deadline.
4) Failing to claim home office deductions
You are eligible for home office deductions while filing as a sole proprietor if you work from home. You can work from home in an office or a designated place.
Many business owners are hesitant to take advantage of this tax break. However, if you file as a sole proprietor, you can claim this deduction and save money on your taxes.
The IRS uses two formulas to compute the deduction amount: standard and simplified. Keep track of electricity bills, repairs, and other expenses for the standard deduction.
You can also claim $5 per square foot using the simplified formula. Therefore, the most you can receive for a 300 square foot home office is $1500.
5) Failing to claim deductions for business gifts
The gifts you offer your clients for branding purposes can help you save money on taxes. A $25 per person business gift deduction is allowed under the tax laws.
As a result, if you claimed $1000 in this category, including receipts and proof that the gifts were given to the required number of persons, you’re up for a rebate.
6) Confusing equipment and supply deductions
Business supplies include pens, paper, printer ink, notepads, etc. Equipment includes computers, software, and office furniture. Supplies should be reported on Schedule C, and equipment should be listed on a separate form 4562.
The IRS may not consider a deduction if you record supplies as equipment or vice versa. Furthermore, you can deduct the total cost of the equipment in one go. Alternatively, you might claim a portion of it each year.
7) Failure to track your expenses
If you keep track of every dollar you spend on your business, you can claim some of it as a deduction from the IRS. Hence, keep receipts and documentation to back them up.
For example, you can deduct not only your phone bills and travel insurance premiums but also web hosting, online courses, educational materials, and so on.
Thus, instead of scrambling to find receipts right before April, make it a practice to file them and keep track of your expenses.
8) Registering your firm as a wrong entity
If you end up paying more taxes as a sole proprietor, it’s wiser to change your business entity to an S-corporation. Similarly, if it lowers your tax burden, you can choose an LLC or C-corporation. Always consult your CPA or tax professional before making a decision.
Hence, by filing as a sole proprietor in the United States, you can take advantage of over 28 tax deductions. You can also put your tax savings to good use and go for business expansion.
If the IRS comes knocking on your door, prepare the necessary receipts and documentation to back them up. If you correct the aforementioned errors, you may soon find yourself staring at a sizable return.
Contact AOTAX if you are an Indian business owner wishing to file taxes as a sole proprietor. Over 2 million Indians have benefited from our assistance, at AOTAX, in filing their taxes on time.
Our tax planners and advisors will ensure that you get the most out of your tax returns and never miss a tax deadline.
Whether you file your tax return using tax software or work with a professional, a tax prep checklist will help you organize and retrieve the documents and information you’ll need to complete your tax return. Therefore, this article helps you understand the necessary documents and papers you need to file your tax to avoid typical mistakes and errors, allowing you to keep as much of your own money as possible.
Checklist You Need to Follow If You Are Filing Your Taxes Yourself
Not every category of this checklist will apply to you. However, when you are ready to file your tax return, you’ll be surprised how much time you will save by organizing your information in advance.
Remember that if you are married and filing a joint return, you will need to include the following information for your spouse as well.
The following is a list of the tax documents and information you’ll require:
Personal information
The IRS and state taxation authorities use your personal information to determine who is filing a return, how to contact you, and where to deposit your tax refund. Your personal information will include:
Your full legal name, as it displays on your Social Security card
Year of birth
Social Security number
Residential address
A copy of state and federal tax returns from the previous year
To receive your refund by direct deposit, you’ll need your bank account number and routing number.
Dependent information
You’ll need the following information to claim someone else as a dependent:
Names, dates of birth, and Social Security numbers of dependents (as they appear on their Social Security cards) (or tax ID numbers)
If the custodial parent of your dependent child is relinquishing their right to claim the child as a dependent, fill out Form 8332.
Sources of income
You may receive many different forms documenting your income. Among the most common are:
W-2s (Wage and Tax Statements) from your company (s)
Form 1099-G to report unemployment benefits and state or local tax refunds.
Forms 1099-INT and 1099-DIV, to report interest, stock sales, and dividends
Form 1099-B to report broker-handled transactions.
Forms 1099-R and SSA-1099 to report retirement plan distributions and Social Security benefits.
Form 1099-S to report income from your home or other property sales.
Form 1099-Q to report 529 plan or Coverdell ESA distributions
Form 1099-SA (HSA) to report distributions from a health savings account
Schedule K-1 for a pass-through corporation, trust, or estate income.
Alimony received (in the case you are separated or divorced, and the agreement is dated on/before December 31, 2018)
Record of any cryptocurrency transactions.
Other sources of income, such as gaming winnings, debt cancelation, jury duty pay, etc.
Self-employment and business records
If you are self-employed, you must disclose your income. However, you can also deduct business expenses from your gross income to reduce your taxable income.
The following are the documents and business records a self-employed person must maintain and need at the time of filing returns:
Forms 1099-NEC or 1099-K. To report income earned as an independent contractor
Records of business income and expenses.
Documentation for home office expenses, including the square footage of the home and the area used only for business.
Records for depreciating business equipment, including cost and date of installation.
Record of business-related miles traveled
Deductions
Deductions can help you reduce your taxable income and maximize your refund by lowering your tax liability. In general, you can either take the standard deduction (a fixed amount based on your filing status) or itemize your deductions.
If you itemize your deductions, you’ll need information on the following:
Expenses for medical care paid from pocket
Long-term care insurance premiums that have been paid
Any mortgage insurance premiums, mortgage interest, and charges you paid during the tax year are listed on Form 1098.
Taxes on property
State, local taxes, including sales tax.
Taxes paid with the registration of your vehicle
Charitable donations
Documentation of casualty losses (if you owned/lived in a property situated in a federally declared disaster area)
Even if you do not itemize, if you have the following deductions, referred to as adjustments to income, you can claim them.
Below are such adjustments to income:
Interest on student loans is reported on Form 1098-E.
Contributions to an HSA, IRA, SEP, or self-employed retirement plan should be recorded.
Alimony paid (for separation/divorce agreements dated on/before December 31, 2018)
Expenses for classroom supplies that teachers paid.
Premiums paid for self-employed health insurance
Tax credits
Tax credits reduce the amount of tax you owe on a dollar-for-dollar basis. To claim potentially essential tax credits, you’ll require the following documents:
Child care fees and the name, address, and tax identification number of the care provider are listed on Form 1098-T.
Costs of adoption and the Social Security number of the child you officially adopted in 2021
If you bought health insurance through the Health Insurance Marketplace, you’d need to fill out Form 1095-A.
Estimated tax payments
You may have to make estimated tax payments if you are self-employed or earn a lot of money and don’t have federal and state income tax withheld.
To avoid paying twice, ensure you include those estimations on your tax return:
Estimated tax payments to the IRS and state and local tax authorities made.
Refunds from previous years are applied to the current year.
Any amounts paid as a result of the extension
Proof of losses
Deductions are available for different types of financial losses. If any of the following losses apply to you, provide evidence of the following:
Keep track of any stocks or other investments that have lost all value or for which you expect to file a loss claim, including the date and original purchase price.
Non-business bad debts that are not collected (an instance of a non-business bad debt is lending money to relatives from your bank account and having them not reimburse it.)
Letters from the IRS
You may receive different notices or letters from the IRS and state tax authorities that influence this year’s return.
So when preparing your 2021 return, make sure you have these on hand:
IP PIN or Identity Protection PIN that the IRS issues
It may take some time to gather all of this information before filing your return, but it will ensure you have everything you need to claim every tax deduction and credit.
After you submit your taxes, it’s a good idea to keep them in a safe place in case you’re audited. If the IRS or your state tax authority audits your return, they may request records to back up your income and tax benefits. In addition, having all of this information in one location can help you save time and avoid losing any deductions or credits.
With over 15 years of experience, AOTAX is the experienced team you need. We at AOTAX have taken care of the finances of numerous Indian IT professionals. We have assisted in reducing tax burdens and simplifying year-round tax preparation. So, if you’re going to trust a pro, go with AOTAX and sign up for free today!
Recent Comments