It's tax season! (Cue the groans). We all know filing taxes is a necessary pain all of us are forced to undergo. Luckily, there are tons of resources available to help you prepare and file. At Neat Loans, we believe in having a strong financial education and understanding the basic components of filing your taxes is a big part of that. With the tax deadline right around the corner, we’ve compiled some need-to-know information on filing your taxes on or before the deadline.
Step One: Locate your Documentation
The first step to filing your taxes is identifying and locating your income documentation. If you are like most employees, you will receive a W-2 form with all your income information sometime in January. If you are self-employed, contracted or earn other income, preparing your income documentation will be a bit more tricky. You are considered self-employed if you receive a 1099-MISC or 1099-K instead of a W2, work as an independent contractor, or are in any way in business for yourself. If you are self-employed you will need to file a 1040, as well as a Schedule C form. To get the best results from your tax filing as a self-employed filer, it is strongly recommended to work with a CPA or another professional tax service.
Once you have your income documentation, you will need to find all other tax documentations needed. These include the following:
These documents are typically mailed or sent to you by January 31st, so review your mail and emails in the early months of the year.
Step Two: Select your Filing Status
Once you have collected all required documents, you must select your filing status.
The options for your filing status are:
In most cases, people either file as single or married filing jointly. Filing jointly as a married couple, filing as head of household, or as a qualifying widower can help you save on taxes. Make sure you carefully and accurately evaluate which filing status is right for you.
Step Three: Choose your Deductions
Step three is choosing between the standard deduction, or itemizing your deductions. Tax deductions lower your taxable income, which in turn will lower your tax bill. It is very important to be careful when deciding what you would like to deduct. The standard deduction for 2022 for single filers is $12,950, and $25,100 for married couples. If your eligible deductions add up to more than this, you are better off itemizing. If not, it is easier and more financially beneficial to take the standard deduction. For anything you plan on deducting, make sure you keep track of receipts and documentation.
Here are some examples of deductible expenses:
There are several different home mortgage-related deductions you’ll want to take advantage of.
Mortgage Interest Deduction: If you purchased your home before 2017, you can deduct the interest you paid on the first $1 million of your mortgage debt for your primary or secondary residence. If you purchased after 2017, you can only deduct the interest paid on the first $750,000 of your debt.
Home Equity Line of Credit (HELOC) Deduction: Similar to your primary mortgage, you can deduct interest you’ve paid on a HELOC. However, you are only eligible for this deduction if you used your borrowed funds for home improvement as of 2017.
Discount Point Deduction: If you used discount points to buy down your mortgage rate when purchasing your home, you can deduct these points. However loan origination points are not tax deductible, so make sure you discuss with your home loan advisor along with a tax professional how points may or may not be beneficial.
Property Tax Deduction: All homeowners have the opportunity to deduct the state and local property tax they pay on real property up to $10,000. Real property includes the following:
Necessary Home Improvement Deductions: Most renovations are not deductible. However if you are required to make renovations for extreme safety or medical reasons, you can deduct these expenses.
Home Office Expenses: If you operate a business from your home, you can deduct some business expenses. The IRS has strict guidelines on what considers operating a business from your home: working from home for your employer does not count. Be sure to research the IRS requirements before deducting these expenses.
Mortgage Insurance: Not to be confused with homeowners insurance which is non-deductible. Mortgage insurance is often required with a low down payment, and is paid with your monthly mortgage payment. These payments can be deducted depending on your adjusted gross income.
Step Four: Begin to File
Step four, you begin to file! According to the IRS, 50% of Americans use a CPA or other professional to file their taxes, and 43% use online filing services. A very small percentage of Americans mail in their taxes to the IRS the old-fashioned way. Filing online can be easy and straightforward if you have a simple tax scenario; if you are a W-2 employee using an online service will be the most affordable way to file.
Make sure you file as soon as possible, as the longer you wait the longer it will take to get your return. If you need to work with a tax professional, schedule your time with them in advance as it gets more and more difficult as you approach the tax deadline.
Step Five: Prepare for Next Year
Once you’ve finished filing, it may be tempting to quickly stash your paperwork, close your laptop and not think about your taxes for another 12 months. But taking the extra time to carefully file away documents, keep track of passwords, and make a record of your results will help save time and energy next year. Make sure to keep all receipts, documents, and everything you need to file, just in case the IRS has any questions about your return.
That's it! Your tax return should be processed within 6-8 weeks of complete filing, and any taxes you owe are due by April 18, 2022. If you can’t file by the due date, you can request a six month extension from filing. A tax extension does not extend how much time you have to pay your taxes.
Up- to-date tax returns are required to process most mortgage loans, so if you are planning on buying or refinancing soon, keep your filed tax documents or tax extension on hand!
Most mortgage loans don’t require your finalized tax return to qualify; however if you are self-employed or fit certain criteria, your last two tax returns may be required. Make sure to locate these files prior to your application just in case! When you are ready to apply, login to Neat Loans and get pre-approved in just three minutes!
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