5 Tips to Help Young Professionals Prepare a Tax Return
(NewsUSA) - Filing your taxes can be stressful and intimidating, but it doesn’t have to be. As the deadline for filing taxes approaches, don’t let the pressure overwhelm you. Follow these five tips for a smooth tax season.
Know the different types of taxes you might have to pay.
Federal Taxes: Your money is taxed at a rate between 0% and 37%, depending on how much you earn. Your employer will deduct the money for these taxes, and the taxes listed below, from your paycheck each payday.
State Taxes: Not all states require you to pay state income taxes, but those that do typically take 3% to 11%.
Local Taxes: These apply only to certain large cities, such as New York City, and can be as much as 10% of your gross paycheck.
Social Security: Your employer will withhold 6.2% of your pay to cover Social Security taxes.
Medicare: For this tax, 1.45% of your pay is withheld from your check.
Understand what getting a tax refund means.
People make big plans for tax refunds, but most Americans are unclear on why they’re getting a refund. A refund indicates that you overpaid your federal and state taxes, essentially giving the government an interest-free loan. Adjust your tax withholding through your payroll to have less money deducted from your paycheck.
Understand the different tax forms you might receive.
These are the different forms needed to file your taxes:
- W-2: This comes from your employer and summarizes wages, taxes and deductions throughout the year.
- 1099: These are used to report other types of income you’ve received, including bank interest (1099-INT). Not every taxpayer receives these forms.
- 1098: This form and its variants show payments you’ve made that may qualify you for tax benefits. For example, a regular 1098 shows mortgage interest paid, a 1098-T shows money paid for school tuition and expenses, and a 1098-E shows student loan interest paid.
Understand due dates.
Your tax return is usually due on April 15, although this year’s deadline has been extended to April 18. If you’re not ready, you can request a six-month extension, but this is only an extension for filing the return. The money you owe is still due by the regular tax deadline.
Understand what to do if you owe taxes and don’t have the money to pay right away.
Don’t panic, but don’t ignore the problem either. Contact the IRS to set up a payment plan. You’ll have to pay the government eventually, and until you do the IRS can add costly interest and late fees to what you owe. Get started, pay what you can as soon as possible, and then continue making payments.
Just as you can change your withholding to have your employer deduct fewer taxes from your paycheck, you can increase the amount to keep from owing in the future. Contact your HR/Payroll department to learn more.
For help in figuring out how your income taxes impact your financial situation, reach out to a CFP® professional at LetsMakeAPlan.org.