Dealing with tax obligations is complex and can be confusing. That is why the more you understand about it, the better you feel and will have more opportunities to improve for next year.
Here are some tax-related questions and tips that you may find practical and useful. And remember, do not hesitate to ask a professional. It can save you time, money and sleepless nights.
Life gets in the way and I need to file an extension. How much time do I have?
Here in the US, you can file a tax extension if you are not yet ready to file your tax returns in time for the tax deadline – generally on 15 April every year. An extension will extend the time to file your personal returns for six months or until 15 October but it DOES NOT extend the deadline to pay the tax. That is always a confusion. If you think you are going to owe tax by 15 April, make sure to send money in if you do not want to incur unnecessary interests and penalties.
Will I owe tax or get a refund?
What are the odds? You either owe tax or you get a refund. Did you feel like you will get less refund for tax year 2021? If you have dependents, it is possible that you already got the child tax credit in advance in 2021 via direct deposit or checks. That would play into how much money you got back for tax year 2021. If you refinanced your home and you paid less mortgage interest, that means you have less tax deduction and it may have resulted in reduced refund or a balance due.
How do I choose the right tax professional?
Go for someone with knowledge and experience. Nothing beats these qualifications. Make sure whoever you choose has the capability to take care of your specific tax situation.
Number two: responsiveness. Make sure that the firm is responsive to your needs.
Number three: organization is key. Find out about their process. Remember, they are dealing with a lot of paperwork day in and day out and you don’t want your information mixed up with others. Make sure you know how organized the firm is.
Lastly, see to it that this is a firm you can trust. Check out their website, qualifications, staff and their clients, make sure they are the right fit for you.
What is a Capital Gains Tax?
A Capital Gains Tax is a tax that is imposed on a non-inventory asset. An example of which is your personal residence. If you are planning to sell your home in 2022, the goal is to pay less tax or eliminate the Capital Gains Tax.
It is important that you have been living in your house for the last two years before selling it, then you can use a full Capital Gains exclusion of up to $500,000, if you are married, and $250,000 if you are single. Now, that should help eliminate or reduce capital gains tax altogether.
What are the two letters that you should include in your tax returns?
One is the letter from the IRS that relates to your stimulus money that is called your economic impact payment. It tells you how much stimulus money you received in 2021 and how much you think you will be able to recover some more, also known as the recovery rebate credit. Second letter is that if you have a dependent or dependents you should have received some kind of advanced child credit. If you have not, you would be able to claim this payment on your tax returns. It is very important to find these letters because they determine what amount of additional refund that you are going to get or reduced taxes that you are going to owe.
Do we pay tax on the cash gift that we get?
Here’s a situation: this week a son has called me because he got $100,000 from his parents so he can buy his first house. It was exciting for him but he was worried that he would be paying tax on that gift. The good news is, he doesn´t need to pay tax on that gift and his parents will not pay tax either. All they need to do is file a gift tax return because they exceeded the $16,000 (for 2022) annual gift tax exclusion where you do not pay tax or file a tax return. In short, there is no tax involved, this is just a compliance issue.
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Sharon Masler is the Managing Partner of Masler & Associates, CPAs. She has 25 years in finance and accounting. Her background includes planning and performing audits, reviews and compilations of financial statements, primarily for medium-size, privately-held companies in manufacturing and distribution industries.