What Is Tax Season And How To Prepare For Your 2022 Tax Return

Tax season can cause a lot of headaches for many business owners — but fear not! This article will provide you with all the details you need so you will feel prepared as you tackle this year’s tax season. We’ll also answer the most frequently asked questions about the 2022 tax season and give you some bonus tips to help you get through this time of year with ease.  

What is tax season? 

Tax season refers to the period when most individuals are required to file and submit their tax returns. A tax season typically runs from January 1st to April 15th every year, though it can vary from year to year.

For example, the 2018 tax season started on January 28th, 2019, and ended on April 15th, 2019 (with a few exceptions for state holidays). Meanwhile, the 2020 tax filing season also started on January 28th but ended on July 15th, 2020, as the IRS decided to extend the deadline in response to the COVID-19 outbreak. 

Any tax returns submitted after the end of tax season are subject to late penalty fees and interest charges. That’s why, if you require a later deadline for any reason, you should always contact the IRS beforehand to request a temporary delay. 

During tax season, in addition to filing their own taxes, business owners must provide tax documents to their employees, contract laborers, and others, such as royalty earners, detailing the information needed to complete an individual’s tax returns. 

See also: How To File Taxes For The First Time: A Complete Guide To All Your Questions.

2022 Tax Season FAQ

1. When will I be able to file my 2021 taxes? 

According to the IRS, you can start filing and submitting your 2021 taxes on January 24th, 2022, at the earliest. 

If your income was $73,000 or less in 2021, you can file your taxes for free through the Internal Revenue Service (IRS) Free File program

2. What’s the deadline for filing my 2021 tax return with the IRS?

The deadline for most taxpayers to file federal taxes is April 18th, 2022  because this year, April 15th is Emancipation Day, a federal holiday. 

Taxpayers in Maine and Massachusetts have until April 19th to file their returns as both states recognize Patriots’ Day.

3. Can I request an extension?  

Yes. You can request an extension by filing Form 4868 by April 18th, 2022. Taxpayers who request an extension will have until October 17th, 2022, to file their 2021 tax returns. 

Remember that a filing extension does not extend the time you have to pay the IRS. To avoid late penalties, you must pay an estimated amount of what you owe by April 18th (or April 19th, depending on where you live). An extension simply extends the time you have to complete your paperwork and finish your tax return.

See also: Understanding the IRS’s Tax Underpayment Penalty and How to Avoid It.

4. When will I get my tax refund? 

You can get your tax refund within 21 days if you file electronically, file correctly according to the IRS’s criteria, and choose direct deposit. The IRS strongly advises against filing your taxes on paper as the process takes longer, which may delay the time it takes to issue your refund. 

See also: What Is A Tax Write-Off? 5 Most Common Write-Offs For Small Businesses

5. How can I keep track of my tax refund?

You can check the status of your refund directly on the IRS website IRS.gov/refunds or use the smartphone app IRS2Go

Your refund status will appear on your account within 24 hours after the IRS receives your e-file return or four weeks after you’ve mailed a paper return. If your status is ‘received,’ the IRS has received your return and is processing it. If your status says ‘approved,’ it means your tax refund is on its way.

6. How should I enter my AGI when filing my 2021 tax return electronically if the IRS hasn’t processed my prior return?

When you file electronically, you will be asked about your previous year’s adjusted gross income, or AGI.

If your 2020 tax return hasn’t been completed yet, the IRS recommends entering $0 for your prior-year AGI. Enter $1 as your prior-year AGI if you used the non-filers tool to register for an advance child tax credit payment or the third stimulus payment last year.

See also: When Uncle Sam Screws Up: What to do if the IRS loses your refund.

Tax season 2022 with Shoeboxed

Bonus tips to get through a tax season peacefully 

Here are some useful tips that you can use to lower taxes, save money and avoid tax penalties. 

1. Always be aware of the deadlines

Make sure you write down all of the important tax-related dates on a checklist and set reminders on your phone or Google calendar to get your taxes filed and submitted on time. Here is an example:

  • January 24: First day you can file federal tax returns
  • January 31: Deadline for employers to give employees Form W-2 for filing
  • April 18: Last day to file your 2021 tax return, request an extension, and pay taxes owed
  • April 19: Last day to file your 2021 tax return, request an extension, and pay taxes owed for Massachusetts and Maine residents
  • October 17: Due date to file if you request and are granted an extension

If you file and pay late, you will be required to pay a late-filing penalty of 4.5% per month of the tax owed and a late-payment penalty of 0.5% per month of the tax due. The highest penalty for late filing is 22.5%, while the maximum penalty for late payment is 25%.

2. Have all records readily available  

Make sure you have the necessary supporting documents and records for all claims on your tax return including, but not exclusive to: W-2s, 1099s, receipts, canceled checks, and others. We recommend having a well-organized system that keeps all important information together, and Shoeboxed can help you do just that. Shoeboxed is a software program that quickly and efficiently digitizes your receipts and documents. It automatically extracts and categorizes important data from your receipts, then stores them securely in the cloud. Most importantly, scanned documents from Shoeboxed are legibly accepted by the IRS. Get your records organized and stored with Shoeboxed to ensure you don’t have to pay any more tax than necessary! 

Final thoughts 

Understanding the ins and outs of tax season will help you be better prepared for this important period of time. Keep all the important dates top of mind and have all your documents ready to make your tax returns process easier and more efficient. 

Try Shoeboxed for FREE today!

What Is A Tax Write-Off? 5 Most Common Write-Offs For Small Businesses

Understanding the ins and outs of tax write-offs is a massive advantage for every business owner. It helps you determine the correct amount of tax owed, and more importantly, what to write off to avoid paying any unnecessary extra money. 

This article will cover what a tax write-off is and the 5 most common tax write-offs that might benefit your business. 

Read on! 

What is a tax write-off? 

A write-off (or a tax reduction) is an expense that you can deduct from total revenue to determine the taxable income for your small business. Essentially, tax write-offs lower your taxable income, which means you will pay less tax. That’s why small business owners always try to write off as many expenses as possible.

However, write-offs must be necessary to a business’s operation and be common in the applicable industry to be qualified, according to the IRS. For example, a tax advisor can write off their business cell phone bill because taking calls helps the business operate smoothly, and it’s a common practice in the tax consulting industry. So, the cell phone expense is qualified to be deducted. 

How do small businesses write off? 

Every business, except for partnerships, needs to file an annual income tax return which will include your business write-offs. All you need to do is visit the IRS website and get the correct income tax form for your business structure. You then fill your tax write-offs in and submit the form! 

It’s also crucial to document your business spending, big or small. Your bookkeeping entries aren’t sufficient. You must keep all receipts and purchase records, whether physical or digital. This will help you stay ready if the IRS knocks at your door. 

If your piles of receipts constantly give you a headache, try Shoeboxed! Shoeboxed is a receipt scanner app that digitizes and extracts important information from your paper receipts automatically in seconds. Every single receipt will be stored and fully searchable in one secure place. Sign up for Shoeboxed to enjoy the paperless world! 

Top 5 common tax write-offs for small businesses 

The good news is most business expenses are either fully or partially deductible. Below, you’ll find a list of the top 5 write-offs commonly available that a small business owner should be aware of for the tax season.

  1. Advertising and promotion expenses

You can fully subtract the cost of advertising and promotion from your taxable income. It can be anything like:

  • Ad fees on Google or social media like Facebook, Instagram, etc.  
  • Printing costs for business cards, brochures, and flyers
  • Payment for designers to make logos, posters, etc. 
  • Software used for marketing purposes
  • Website expenses

Remember though, any expenses spent to influence legislation like lobbying or to sponsor a political campaign can’t be deducted. 

  1. Car and truck expenses 

If you use your vehicle for both business and personal reasons, you can deduct all the business-related expenses from using it.  

There are two ways to calculate your automobile expenses. You can choose whatever option gives you the most tax savings. 

  • Standard mileage rate: With this method, you just need to multiply the number of miles traveled for business by the standard rate, which is now $0.56 per mile. 
  • Actual expense method: This method entails adding up all of your vehicle’s operational costs such as gas, repairs, oil, tires, registration fees, leasing payments, and insurance charges. Multiply them by the percentage of miles you drive for business

Keep in mind that you can’t deduct the miles driven while commuting to work because they are regarded as personal commuting expenses. 

  1. Travel expenses 

A business trip eligible for traveling tax deduction has to be ordinary, necessary, and away from the entire city or area where you operate your business, regardless of where you live (aka tax home). Plus, your travel must be longer than a normal day’s work, requiring you to sleep or rest during the trip. 

The IRS approves some deductible expenses for business travel, including:

  • Travel costs to and from your destination by plane, train, bus, or car
  • Baggage and shipping 
  • Parking and toll fees
  • Cost of transportation during the business trip
  • Accommodation 
  • Dry cleaning and laundry
  • Tips
  • Meals 
  • Other similar ordinary and necessary expenses related to your business travel. (e.g., a rental fee of a hotel business center, hiring an interpreter, etc.)

Again, remember to ask for and keep all the receipts and related documents as they are the foundation for writing expenses off. 

  1. Bank fees

You may be able to deduct annual or monthly service charges, transfer fees, or overdraft fees from your bank or credit card. Also, you may be eligible to deduct transaction and merchant costs paid to third-party payment processors. For example, platforms like Stripe and PayPal fall within this category. 

Keep in mind that any fees directly tied to your personal credit cards or bank accounts aren’t deductible. That’s why it’s best to separate your business bank account from your personal one, as it’s easy to mix things up when you file a tax return and you might end up losing money. 

  1. Education costs

You can fully write off education expenses if they contribute value to your business and advance your expertise. The IRS will look into your classes or courses to decide whether they maintain or improve skills that are compulsory in your current business. If yes, they can be written off completely. 

Below are some examples of education costs: 

  • Courses to improve skills in your field
  • Seminars and webinars
  • Subscriptions to trade or professional publications in your field
  • Books 
  • Workshops 
  • Transportation expenses to and from classes

Any education costs that don’t serve your current career and business wouldn’t be qualified. 

In short, maximize your write-offs 

No one wants to pay Uncle Sam more than necessary. That’s why you really should understand tax write-offs and minimize the amount of income tax you have to pay. Don’t forget to keep good records of every transaction in case the IRS wants to audit you!. 

Get your receipts organized with Shoeboxed

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Understanding the IRS’s Tax Underpayment Penalty and How to Avoid It

Whether you are a freelance worker or an owner who earns money from your business, if you didn’t pay the estimated tax properly, you could end up paying an Internal Revenue Service (IRS) tax underpayment penalty. 

This article covers what can trigger a penalty and what you can do to avoid penalties in the future. 

What is a tax underpayment penalty and how does it work?

Though you only file one tax return each year, federal income tax is technically a pay-as-you-go system. You’re expected to pay tax on your income as you earn it throughout the year. Ordinarily, your employer does this for you through income tax withholding. However, if you are a freelancer, you must make your own tax payments throughout the year.

A tax underpayment penalty is a fine imposed by the IRS on individual or corporate taxpayers who don’t pay enough of their estimated taxes, don’t have enough withheld from their wages, or who pay late. The purpose of this penalty is to promote on-time and accurate estimated tax payments from taxpayers. 

The IRS may charge the tax underpayment penalty if you owe more than $1,000 in tax when you file your tax return. They may also apply this penalty if the payments you made add up to less than 90% of the tax you owe. For example, suppose that you owe $10,000 worth of tax on your 2020 tax return, but you only made $8,000 in estimated tax payments. In this case, since your tax payments only amounted to 80% of the tax due, the IRS could apply a penalty. 

The tax underpayment penalty isn’t a static percentage or flat dollar amount. Suppose the taxpayer realizes that they have underpaid taxes. In that case, they must then pay the difference plus a penalty calculated based on the remaining balance owed and how long the amount has been overdue. 

The failure-to-pay penalty that applies to tax underpayments is 0.5 percent of the amount owed for each month (or another time frame) the tax is not paid. This underpayment/failure-to-pay penalty won’t exceed 25% of the unpaid amount. 

Along with a penalty, tax underpayments (as well as overpayments) generate interest. The IRS sets the interest rate every quarter for most individual taxpayers, based on the federal short-term rate plus 3%.

The interest payment rates for Q4/2021 (announced on Aug. 25, 2021) are:

  • 3% for individual underpayments
  • 5% for large corporate underpayments (exceeding $100,000)

Exceptions for underpayment penalties

There are certain exceptions when the underpayment penalty doesn’t apply, which are: 

  • A taxpayer’s total tax liability (after withholdings and credits) is less than $1,000
  • The taxpayer paid a minimum of 90% of the total tax from the current year’s return or paid 100% of their tax liability from the previous year. (*See below for a more detailed note)
  • The taxpayer missed a required payment due to an unforeseen, uncommon, or noteworthy event (such as a casualty or disaster)
  • The taxpayer retired at age 62 or older during the prior or current tax year 
  • Estimated payments were unfulfilled because the taxpayer became disabled during the tax year or the preceding tax year
  • Any other situation in which the underpayment was due to a reasonable cause, not willful neglect. 

(*Note: In this case discussed in this second point, the rule changes a bit if your annual income increases. If your adjusted gross income for the current tax year exceeds $150,000 ($75,000 if married filing separately), you must pay 110% of your previous year’s tax liability.

However, those who don’t qualify for the above exceptions may still qualify for a reduced tax underpayment penalty in certain circumstances. For instance, individuals who change their tax filing status from “single” to “married filing jointly” may be eligible for a reduced penalty because of the higher standard deduction.

What you can do if you received a tax underpayment penalty

Generally, if you fail to pay a sufficient amount of your taxes owed throughout the year, the IRS can issue a tax underpayment penalty. However, suppose you have already paid enough and still receive a tax underpayment penalty. In that case, you may request to have it waived by showing a reasonable cause or proving that you were unable to calculate your estimated income. 

In some cases, you may successfully reduce or eliminate your tax underpayment penalty if the IRS provided you with incorrect information. For example, if you called the IRS to address a question and got the wrong advice from an IRS agent, you might succeed in avoiding a tax underpayment penalty. To be eligible for this, make sure you always note down the date and time of your call to the IRS as well as the name of the person you spoke to. If you encounter an agent who is hesitant to give you a firm answer to your question, try to be patient with them. Many agents are cautious to answer anything that could be regarded as tax advice for fear of misspeaking or giving you wrong information.

How to avoid tax underpayment penalties in the future?

No one likes ending up with a tax underpayment penalty, so here are some steps you can take to avoid this penalty in the future. 

1. Be aware of when your payments are due

For starters, adequately paying quarterly taxes by the dates shown below will help save you from incurring the underpayment penalty: 

  • Apr. 15
  • Jun. 15
  • Sept. 15
  • Jan. 15 of the following year

If a due date falls on a weekend or holiday, the payment is due the next business day.

2. Annualize your income

Generally, you don’t need to wait and pay all your tax liability at the end of the year. Especially if your income is unpredictable or seasonal, you may want to annualize your income, which basically means you will pay your tax payments based on a reasonable estimate of your income during each quarterly period. 

If you own a seasonal business and most of your annual earnings come from three consecutive months, annualizing your income can help you better estimate your tax payment. Calculating your estimated payments and making quarterly estimated payments can help you avoid the tax underpayment penalty. To use this method, you need to complete Form 2210 and attach it to your return.

For example, your business makes $30,000 per year, but all of that money comes in from June through September. When determining your estimated payments, take the $30,000 you expect to make and divide it by 12 months. This way, you can spread the amount of your estimated tax payments evenly across the year and make sure you don’t break the IRS’s pay-as-you-go rule.

3. Adjust your W-4 withholding

Generally, employers must withhold taxes from employees’ paychecks based on their earnings and employees’ information on their W-4s. If your employer isn’t withholding enough tax, you can make up the difference by revising your W-4 and requesting that they withhold more.

You can use the IRS withholding calculator to estimate how much your employer should withhold from your paychecks. Then fill out a new Form W-4, indicate how much you want to be withheld, and submit it to your employer. This can reduce or even eliminate the need for making estimated payments on your own.

The bottom line

To pay the right amount of your taxes owed throughout the years, you can ask your employer to withhold more from your paycheck. Otherwise, you can calculate and make your quarterly estimated tax payments if you’re a freelancer.

Submitting tax payments on time and filing paperwork can seem daunting, but it’s all part of developing a disciplined, well-organized documentation process. The Shoeboxed app can help your business stay efficient and organized!

Shoeboxed is a painless receipt-tracking and expense-managing app that helps get you ready for tax seasons. After scanning your receipts with the Shoeboxed app, you can create clear and comprehensive expense reports that include images of your receipts. You can then export, share or print all of the information you need for easy tax preparation or reimbursement, all within a few clicks. Shoeboxed ensures that the digital versions of your receipts are legibly scanned, clearly categorized, and accepted by both the Internal Revenue Service and the Canada Revenue Service in the event of an audit. 
The Shoeboxed app is available on iOS and Android. Try Shoeboxed for free and get yourself prepared for tax seasons!