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Tips for Pain-Free Tax Filing
It’s time again to start thinking about getting your tax return prepared. Here are some quick tips you can use to help speed tax processing and avoid hassles.
- Gather all documents needed to prepare an accurate return, including W-2s, 1099 forms, statements of interest and dividends, and relevant receipts. Failure to provide certain information could mean an incomplete return, which may require additional processing and delay any refund due.
- Check names, Social Security numbers and amounts for accuracy and correct spelling. Also, if you supply a bank account number, double-check it.
- Don’t wait to contact the office for a tax preparation appointment.
Deduction vs. Credit
Many taxpayers are unclear on the difference between deductions and credits. Both can be powerful tax-saving tools. Here’s how they each work:
Deductions lower a taxpayer’s taxable income before the tax is calculated. For instance, on an individual return, you can either claim the standard deduction or itemize deductions, depending on which option reduces your taxable income more.
Credits directly reduce the tax due, dollar-for-dollar. As a result, credits are more valuable than deductions of the same dollar amount. Some credits, such as the Child Tax Credit, are partially or fully refundable, meaning that if the credit exceeds the tax owed, the taxpayer may receive some or all of the difference as a refund.
Required Withholding for Supplemental Pay
Employers are required to withhold federal tax from supplemental wages paid to employees. These include bonuses, commissions, reimbursements (so long as you don’t have an accountable plan), severance, cash prizes, retroactive raises and taxable fringe benefits.
Suppose you pay a bonus separately from regular wages. In that case, you generally must either 1) withhold 22% or 2) add the supplemental wage to the employee’s regular wages and withhold at the ordinary rate.
Supplemental wages paid with regular wages are subject to ordinary withholding. (For supplemental wage payments over $1 million, tax on the excess must be withheld at the highest rate, currently 37%.)
