Call it a necessary evil or a tedious task, but preparing and filing the taxes on time is a statutory obligation that every US citizen must adhere to. Not only filing your taxes on time is a part of sound financial planning, but it also saves you from penalties and interests altogether.
So, it is essential to understand state and federal regulations specific to the region for tax preparation in Columbia, MD, or elsewhere in the US.
Understanding the importance of tax preparation
Tax preparation, as the name suggests, is the process of preparing your federal, state, or local tax return for timely filing of the same. You have to prepare and file your taxes after the closing of the financial year, i.e., during tax season (January-April).
It is essential to understand that tax preparation ensures that you are abiding by the state and federal tax laws while also maximizing your tax savings. However, tax preparation requires a sound understanding of tax laws and regulations, tax forms, deductions and credits, taxpayer rights and responsibilities, and much more.
Tax preparation can be done by a Certified Public Accountant (CPA), Enrolled Agent, Tax Attorney, or a non-credential tax preparer (individual without professional credentials).
Other than the above, you also require a Preparer Tax Identification Number (PTIN) issued by the IRS to every tax preparer as an identification number. You must keep the following information along with relevant forms handy while preparing taxes-
- Your personal information like Social Security Number, Tax ID Number, etc.
- Sources of income indicating whether you are employed, unemployed, or self-employed.
- You also need to furnish your rental income, retirement income, savings and investment dividends, and other incomes.
- Information regarding deductions, which include ownership of home and vehicle, charitable donations, medical insurance, medical and educational expenses, etc.
- Information about the dependents, which consists of the social security numbers of the dependents, their birthdates, childcare records, income of the dependents (if any), etc.
You could face severe consequences for not preparing and filing your taxes on time.
If you fail to prepare and file your taxes by the due date, you might have to face the following penalties-
- Penalty for failure to file, which is 5% of the unpaid tax amount each month not exceeding 25% of unpaid taxes.
- Failure to pay penalty, which is 0.05%-25% of the unpaid taxes for the month that due tax is unpaid.
- If your return is delayed over 60 days, the penalty is $450 or 100% of the tax, whichever is smaller.
Final Words
Tax preparation is a crucial part of financial responsibility for all US citizens. It ensures compliance with tax laws and timely filing and helps you avoid penalties. By understanding IRS requirements, organizing the documentation, and seeking professional help, you can seamlessly file your tax and avoid potential consequences.