Tax Tips: Things You Need to Know Before You File

Tax Tips: Things You Need to Know Before You File

By Dave Horwedel,EA

There are things you need to know before you file your tax return. When people do not understand tax basics, or they do not keep up with changes in tax law and regulations, they can get into a lot of unnecessary trouble. The purpose of this article is to save you time and money.

At my firm we utilize the services of EAs, Accountants, CPAs, and support staff to service our clients. We even have a Tax Attorney. The latter comes in handy for IRS Representation, especially in Tax Court, and is invaluable in setting up Partnerships, LLCs, S-Corporations, C-Corporations and all the different kinds of Trusts.

If you are competent to do your own tax return, that is great. If you know the basics of taxes and keep up with law changes, this is a great solution.

However, if you are confused by taxes, or find yourself guessing where to put what on your tax return, it is prudent to utilize a tax professional.

The three top tax credentials are CPA, EA, and Tax Attorney.  CPA and Attorney are the top state credentials. Enrolled Agent (EA) is the top federal credential. This means the EA is automatically licensed in all 50 states.

Also, an EA, like a Tax Attorney, has unlimited rights of representation before the IRS.

This means any taxpayer (Individual. Sole Proprietor, Partnership, LLC, S-Corporation, C-Corporation, Trust, or Estate) can sign an IRS form 2848 IRS Power of Attorney for an EA to Represent the taxpayer, and the EA can represent him in the same way a Tax Attorney can before the IRS. And the EA can do it in all fifty states as he holds a federal license.

These three credentials (EA, CPA, Tax Attorney) also represent the top echelon of tax preparers, Our product at Torchlight Tax is the tax dollars we save our clients without cheating or putting them at risk.

This means maximizing your tax refund or minimizing your tax liability.

The fastest way for you to get your tax refund is by doing three things:

1) E-file the tax return

2) Authorize the IRS to direct deposit your tax return.

3) Do the Tax Return right with no errors. If you or your preparer  make mistakes like forgetting to report some income or messing up the direct deposit information for your banking,  these errors are likely to slow down your tax refund process

The IRS says that 9 out of 10 refunds are sent out within three weeks. They say three weeks, but a lot of people receive their tax refund as quickly as one week from the time they submit.

Some states are fast as well. However, there are always some unlucky people who are going to be waiting months for their tax refund. There are unfortunate and unlucky situations, but usually, it’s about three weeks or so to get your refund.

I have also noticed that since the Covid 19 Pandemic, there has been a wider variability in the time it takes to process a refund.

To check on a refund, go to the IRS website. On their website, they have a tool where you can see the status of your tax refund. You can just Google “Where’s my refund?” and it will take you there. Just make sure you end up at the IRS website. (You don’t want to go to a scammer’s website.)  At the website, they have a “Check Your Refund” tool that’s going to give you a status update on your tax refund, and they update that daily. Your state’s Department of Revenue is likely to have a similar tool where you can see the status of your state tax refund as well.

If you’re claiming the Earned Income Tax Credit (EITC) or Child Tax Credit, you’re most likely going to get your tax refund in early March. The IRS is required to hold your refund for three payments.. The IRS says, and I quote, “By law, we must wait until mid-February to issue refunds to taxpayers who claim the Earned Income Tax Credit.” The IRS also says, and I quote, “If you claim the Earned Income Tax Credit, you can expect to get your refund by February 28th if you file your return online, you choose to get your refund by direct deposit, and we find no issues with your return.”

So for people who claimed the Earned Income Tax Credit and Child Tax Credit, the IRS is saying to expect your tax refund after mid-February. Expect it by February 28th at the earliest. But for most people, I would say that you can expect it in early March.

If you claim the EITC and they need more information from you, then the IRS is going to send you a follow-up letter.

Now, if you owe a lot of money on taxes each year, why is that?

Why do you have a big tax bill every year?

The first thing could be simply that you didn’t have enough taxes taken out of your paycheck. If you need to take more taxes out of your paycheck, you can make that modification on your W-4.

The second thing is that it could be that you had some source of income where you made money but no taxes were taken out. For example, if you made a lot of money on stocks or cryptocurrencies, that could be the source of the problem. You made money, but no taxes were withheld. Or if you’re self-employed and you didn’t send in estimated tax payments, that could be another reason.

To handle this, you can make quarterly payments or withhold extra money on your W-4.

Some entrepreneurs say you should pay the money at the end of the year. They want to invest the money during the year and pay it to the IRS at year end.  OK. For some it works.

One of my clients, a married couple with no children, was upset they had a tax bill at the end of the year. They had followed a real estate investment advisor’s tip to put down ten dependents on their W4. OK, I am sure the advisor settled up his tax bill at the end of the year.  He or you can do it this way if you wish.

But be careful with owing money to the IRS because you wind up paying penalties and interest.

Be alert using a name brand franchise software. They’re going to say it’s free, but that’s only applicable to the most basic tax returns. Then they’re going to try to upcharge you and charge you for every form, schedule, or state. So please be aware of that.

Also, be alert to any 1099-Ks which occur when you receive pay via third parties, e.g. PayPal, Cash App, or Venmo.”  This will slow down the whole process and may pull in additional IRS Scrutiny.

You should also know that your 401(k) and IRA contribution limits increase every year for inflation.

Please let me know in the comments if this article has been helpful, and feel free to ask questions in the comments section. I will do my best to answer them rapidly.

Call  my tax office at 1 877 758 7797 or email us at if you would like a free consultation or need tax help.  We do all kinds of taxes from simple personal to complex corporate and trust.  We also negotiate IRS debt, do Tax Audit, Levy and Lien Defense.   Also, many small businesses have applied for and/or received the Employee Retention Credit and are worried that it might have been done wrong and they might be audited.  Most ERC-only firms do not do Audit Defense. We do. You are welcome to contact us for a free consultation and we can advise you on your next steps.

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