Tax preparation is important to ensure proper deduction of taxes so that you are not unfairly overpaying the government. If you are self-employed or if your income may be taxable, it is especially important for you to understand how taxes work and what tax rates apply to your situation. This article will outline 3 reasons why tax preparation is important in order to help you prepare your own taxes or hire a professional to do it.
Planning
Since deductions are allowed based on certain criteria (household size, age, disability status, childcare expenses, and medical insurance premiums paid throughout the year), it is important to take advantage of deductions that apply to you and/or consult with a professional who can help guide you through the process. For example, an accountant might recommend using funds from last year's return to purchase additional medical insurance or something else that would result in a deduction (to lower this year's taxable income).
Proper Filing Status
The tax filing status that one uses affects many different deductions and credits, including things like the standard deduction, the child tax credit, head of household filing status requirements (for reduced rates), etc. For example, if you are single but have children living with you, it might make sense to file as head of household because this could decrease your taxable income due to certain deductions that are available only to heads of households. Each situation is unique and there may be more than one valid option for a person's status; however, improperly filing a particular status could result in overpaying taxes or losing out on thousands of dollars in potential refunds/credit.
Dependents
It is typically recommended that you claim dependents (such as your children or other dependents living with you) on your tax return if they meet the qualifications. There are specific criteria for who qualifies as a dependent, such as receiving over half of their support from you, having no income of their own, residing with you more than half the year (except in special situations), etc. Talk to your accountant or tax professional to help you and make the process easier.
It is important to note that filing taxes can be complicated and each person's situation may vary; therefore, it is recommended that you seek professional assistance if you are unsure about how best to file your taxes or if you want additional help throughout the tax preparation process. For all your tax questions and services, contact a tax preparation service near you.
