Each year we prepare hundreds of tax returns on behalf of clients and have noticed that it doesn’t take much complicate your tax return. Filing your tax return can be simple for many people who have only employment income and a handful of expenses to report. But it gets more complicated quickly if any of a few common scenarios apply to you.
Income From a Side Gig or Self-Employment
When you are employed by a company, the income you earned is reported on a W-2 which your employer provides to you and to the IRS. W-2s summarize all of the information about taxable income and source deductions that were withheld before you were paid so that it’s easy to report when it’s time for tax preparation. But when you work for yourself, or you have a side gig that generates some income, there’s often no W-2, even though that income needs to be reported. In order to file, you’ll need to know exactly how much you made, and have your expenses calculated. Rather than scramble to get the information together at tax time, we encourage clients to spend a little time throughout the year to organize. By doing so, calculating your income and expenses isn’t a chore and you’ll have a backup ready show if the IRS asks any questions.
Changes in Marital Status
Getting married, separated or divorced complicates your taxes by changing the way you file your tax return—either as an individual or jointly. Filing jointly usually means that you’ll qualify for certain family-oriented tax deductions and credits, making it a favorable option for most married couples. However, filing jointly can also cause a messy situation if one of you owes back taxes, isn’t up to date on filing or has some other type of outstanding non-tax debt. In these cases, filing separately may still be the better choice even though the family deductions won’t apply. We often field questions from clients who have experienced trouble finding conclusive answers for their particular family situations. While everyone’s questions are different, it’s likely that we have encountered similar ones before and can make a recommendation on what will work best for you.
Income from Rental Properties
The income you generate from renting out properties that you own or part of the property you live in means that there is additional paperwork that will undoubtedly complicate your tax return. Rental income must be reported to the IRS and depending on the amount you collected, when you collected it, plus any other income you had, it will be taxed accordingly. The income can be offset by expenses incurred in maintaining or improving your rental property, however, the rules around what is allowed are sometimes murky. The greatest source of confusion we see among clients with rental income stems from the rules that the IRS uses to determine what qualifies as a rental property versus a residence, and what expenses are eligible deductions. Even renting a property or part of your home to a family member can further muddy the waters of how to report this income while minimizing the amount of tax you need to pay.
Preparing tax returns is one of those tasks that very few people enjoy, but everyone has to endure. If any of the situations above apply to you have a professional tax preparer do your taxes for you. We know how to navigate the ins and out of the tax code, can ensure that you take advantage of all of the available deductions and credits, and that you don’t make a mistake that could come back to haunt you in the future.
E&Y Insurance and Tax Agents are dedicated to providing our clients with expert income tax service and tax preparation regardless of how simple or complex your situation. Call us now at (248) 817-8071 or fill out the form below to talk about tax assistance, income tax preparation, home, and auto insurance needs.
