For many, the words "personal taxes" often strike fear in the heart. A daunting process, person taxes are often an overwhelming process that never seems to be done quite correctly. Instead of burying your head in the sand though, it is important to keep note of tax season, and changes for the year to ensure that you are fully compliant - and it never hurts to have a professional look it over to make sure everything is reported correctly, and accurately to maximize your return.
It might seem far off, but you would be surprised at how quickly time really flies before it is time to file again. And with that in mind, here are some tips and information that will be handy to keep in mind for the upcoming tax season.
1) If you are self-employed, you will most likely have to make estimated payments
As this Forbes article puts it, "our tax system is considered "pay as you go."" If you are employed, then employers withhold taxes from each paycheck and then turn that money into the IRS for you. And of course, depending on the financial situation and how much withheld, you will either break even, get a refund or owe more taxes.
However, if you are self-employed, the situation shifts. If there is no employer to withhold taxes for you, or if you receive payments that do not account for federal tax withholdings, the IR will still place the onus on you to calculate and pay taxes, especially if you are paying over a thousand dollars. This is applicable for all self-employed citizens, and also includes landlord, S corporations, shareholders or really anyone that will receive a form 1099.
Making these payments may seem difficult, especially if you are trying to estimate them on your own. In this case, it is probably best not to use too much guesswork and work with available tools at your disposal to get the most accurate figures possible. The Forbes article linked above has some tools to start with, such as the federal form 1040ES, Estimated Tax for Individuals. Also ensure that your return gets a second eye from a seasoned professional to ensure that everything is done correctly.
2) For 2017, standard deductions will increase
Deductions are always important to keep an eye on, especially since they may change from year to year depending on how tax policy is shaped and refined. The IRS recently announced a small increase in deductions for 2017, and this will likely continue for the next few years.
According to their increase, both individual filers and heads of household can expect to receive standard deductions of $6,350 and $9,350 respectively. This marks a $50 increase from last year. Joint filing couples will get a year-over-year increase of a $100, lifting their deduction to $12,700.
While it seems like a nominal amount, some increase is better than none at all - especially if it is one where there is minimal effort needed on your part. It is important to track changes in deductions over the year so you are prepared during filing to get the most out of your return.
3) 2016 has seen changes in tax benefits based on inflation, and that may likely occur again in 2017
To account for inflation, some tax brackets saw changes while others remained untouched. Over 50 tax provisions were established in 2016 including tax rate schedules. The IRS often undergoes changes in tax rates and brackets for individuals in order to adjust for inflation, so it is important to track those changes in case it affects your personal tax bracket. A detailed list of changes within brackets can be found on the IRS website here. For filing in 2017, the bracket may see further changes, although incremental, for inflation adjustment.
While it may seem like personal taxes are looming large, it is easy to take control of the situation and ensure that you are filing correctly and maximizing your return. Make sure to stay updated on tax reforms and updates so that you are not blindsided when it comes filing time, and it good practice to have your personal taxes looked over by a professional before submitting so you can avoid costly penalties and fines.