Author: Steve

Selecting between Standard & Itemized Deductions

Selecting between Standard & Itemized Deductions

Filing a tax return annually is an important part of your business activity. But as you prepare your tax return, there is one question that may pop up a lot. And that is whether you should itemize your deductions or prefer to go with the standard deduction that the IRS generally provides to its tax payers.

Theoretically tax deductions are considered a very simple component of the tax reporting system. But ask someone who prepares his tax return himself and you will learn it’s not as simple as it is usually considered to … Read more at 2010 Tax.

Selecting between Standard & Itemized Deductions

Filing a tax return annually is an important part of your business activity. But as you prepare your tax return, there is one question that may pop up a lot. And that is whether you should itemize your deductions or prefer to go with the standard deduction that the IRS generally provides to its tax payers.

Theoretically tax deductions are considered a very simple component of the tax reporting system. But ask someone who prepares his tax return himself and you will learn it’s not as simple as it is usually considered to be. To add to your worries is the lengthy and complicated tax forms. Keeping those complexities in mind it is often wise to just rely on the standard deduction given by the IRS. Or you could decide to go for itemized deductions. So, it’s important to find which deduction system will work best for you.

The standard deduction does not require any calculations or supporting documents and thus is the easiest way to go. You only need to calculate your annual gross income and then submit the calculated amount for your classification. The amount of taxable income differs based on your filing status. The eligible filing status’ are single, married (filing jointly or separately) or Head of Household. To qualify for head of household you have to be single and the primary or sole source of income for a household that includes qualifying dependants.

People may ridicule your decision to take the standard deduction. The fact is that with some types of tax issues, the standard deduction may not be the most suitable option. For people who have fairly simple financial transactions with a limited number of deductions, the standard deduction is usually the perfect choice. For example, if you are an employee of a company with an income of $50,000, you rent your home and don’t have any major medical bills; you are definitely a person more suited for the standard deduction. And whether an itemized deduction will work for you or not may not be clear to you unless you attempt to itemize your deductions in a rough draft of your tax return.

Itemizing your deductions means categorization of every possible deduction. Itemizing of deductions always works best if your financial transactions involve a significant number and volume of tax deductions. For example, if you own a home which entitles you to deduct your mortgage interest and your medical bills are stupendous, you would certainly be better off if you itemize your deductions. In reality, there is no ideal condition or situation where itemizing your deductions is the only option. The example quoted above aims at giving you an idea of the situation where you can itemize your deduction.

In nutshell, if your financial transactions are simple, the standard deduction may be your best choice while in the case of a complicated financial life, itemizing your deductions may optimize your tax return.

So, when your deductions are figured out, the next thing is to find out the taxable income. In order to get your net taxable income, you will have to subtract these deductions from your adjusted gross income. The tax is then determined using the tax tables.

How to Acquire a Federal Income Tax Refund

How to Acquire a Federal Income Tax Refund

‘You are entitled to an income tax refund’ – these are words that would be music for any taxpayer’s ears. A taxpayer enjoys a federal income tax refund if the amount of the pending payable tax is smaller than the total of the refundable tax credits claimed and withholding paid. A lot of individual taxpayers can obtain federal income tax returns through earned Income credit, as refund of overpayment of tax for one or several years. However, not every taxpayer is happy with the concept of a large income tax refund. … Read more at 2010 Tax.

How to Acquire a Federal Income Tax Refund

‘You are entitled to an income tax refund’ – these are words that would be music for any taxpayer’s ears. A taxpayer enjoys a federal income tax refund if the amount of the pending payable tax is smaller than the total of the refundable tax credits claimed and withholding paid. A lot of individual taxpayers can obtain federal income tax returns through earned Income credit, as refund of overpayment of tax for one or several years. However, not every taxpayer is happy with the concept of a large income tax refund. This is because income tax refund is looked upon as money borrowed by the Government and repaid, minus the interest. Some others look at income tax refund as a savings strategy, being happy to get income tax refunds every year. It should always be kept in mind that it is worse to owe money to the Government than to get IRS tax refunds.

Quite a few options are available when putting a tax refund in the taxpayer’s hands. Refund anticipation loans, standard paper filing, electronic filing with direct deposit, rapid tax refunds are the choices and the first and the last in the list are the most preferred choices by taxpayers.

Since we are in an advanced computer age, with an added bonus called the internet, the Internal Revenue Service (IRS) has fast reacted to the advantages of electronic filing. Thanks to the great inventions mentioned above, filing income tax returns, making tax refunds and amount due to the IRS have picked up considerable speed. Let us take a moment to review the varied IRS refund options, and the specific advantages each one has for the individual taxpayer.

The most common and familiar method of filing, the standard paper filing, is gradually becoming obsolete. It probably would not take very long for this ancient system of paper filing to be completely obliterated and the electronic tax filing methods to emerge as worthy substitutes. In case you happen to be one of the very few Americans who still rely on the method of paper filing, you would need to wait for around six weeks to receive your tax refunds. The speed that the internet has made the six week wait a considerably long time to obtain tax refunds.

Comparatively, the electronic method of filing federal income tax return, which is gaining fast popularity at the expense of the old paper filing system, brings you the tax returns in around 10-14 days. This is, of course, much less time than the six weeks required for paper filings to bring returns. What’s better, electronic filing does not involve any extra fees, and one can choose to file tax returns through several local public access facilities.

On the other hand, the refund anticipation loan works a little differently. The refund anticipation loan requires administration by a tax professional through a well-established connection with a financial and lending institution. A number of excellent options are available, as well as the number of qualified and competent tax professionals to help you file your income tax returns, though the taxpayer is entitled to shell out a loan fee or a nominal interest fee in lieu of obtaining the refund anticipation loan. A number of restrictions apply on the receipt of a refund application loan, some of which affect some individuals. For example, those who owe back tax, back child support, liens and judgment etc. do not qualify for the refund anticipation loan. Usually it so happens that individuals opting for the refund application loan receive earned income credit and have their income tax refunds reach up to thousands of dollars. All it takes for the refund anticipation loan to be processed is three hours and reaches the taxpayer within late afternoon, as long as everything goes according to plan.

Since the bank product providers charge higher interest rates and the tax preparers charge higher processing fees, it eats into the money obtained by the taxpayer; however, many of these taxpayers take the extra expenses in their stride as all they want is a quick tax refund. This phenomenon only goes to prove once again that our modern society thrives on the operation of instant gratification. Individuals who opt for electronic filing of tax returns and make the choice of having the amount deposited directly get their work done in not more than 10-15 days. It’s a common belief that two weeks is a pretty good turnaround time for many taxpayers, but usually the time taken for the return is inversely proportional to the amount of the federal income tax refund.

It might appear to be yet another strategy for the system to make money out of the poor; since normally it is the poor who are associated with the earned income credit tax refunds, which, especially in cases of families having two or three dependant members, could be considerably large. It is wise to avoid refund loans as much as possible. They involve high costs. It is a good idea to wait for your federal income tax refund so that the whole of it is for you to keep to yourself.