It’s only a matter of time before tax season arrives and within this period, each and every taxpayer should submit their tax returns. Does not matter if the business is physical or online. No matter how hard you try, it will stand behind your door when the time is right, more specifically, between January 1 and April 15 of each year. Before that, each person who is bound to pay taxes prepares reports and financial statements for the previous year, after which tax returns are ready to be made. Submitting tax returns should be done by April 15, which will indicate the reportable income for the preceding year. What if you are late with filing tax returns or have simply forgotten about them? Well, you will be paying late penalty fees and interest charges. Not that fast!
What if you could lower your taxable income?
This is when Tax Exemption comes in by helping numerous taxpayers save their money. Especially for any small business, tax exemption can make a big difference in terms of finances.
The question is, what is tax exemption and how can we utilize it?
Being a very important and useful tool in the world of tax, it is a part of one’s personal or family income, which is released from taxation. Taxpayers have the right to claim an exemption to lower their taxable income, that is the earnings for which they pay taxes. Tax Exemption consists of personal and dependent exemptions.
You, your husband or wife, and the dependents play a pivotal role since the aforementioned entities are given exemptions. It is attributable to the fact that some people simply depend on you and your income; therefore, you should be financially responsible for them.
In the next blog, you will better understand whom you can consider as “dependents”, however, here are the general criteria for a dependent.
- Age 18 or below and full-time college students under age 24 as an exception
- A family member or qualified relative
- They simply can’t provide more than half of their financial support.
At the moment, personal tax exemptions are eliminated due to different factors leading to this decision. In the 2017 tax year, the personal exemption was $4,050, which means you were able to reduce your taxable income with $4,050, as well as $4,050 for your husband or wife and for each of your dependents.
For Example, A married couple has a combined income of $60,000 which means that they are filing tax returns jointly. They have two children who are considered to be dependents. All in all, they can claim four exemptions (two for the couple and two for their children) of $4,050, which lowers their taxable income by $16,200.
Taxation is a significant factor in every functioning economy. So, it’s important to know everything about it properly. Be prepared for the tax season and know all the tax “tools” which can help you during tax returns. There are many ways to ease your burden like tax exemption, tax deduction, and credits, about which we will talk in our next blogs. When it comes to tax exemption, our Prestige Auditors team of professionals know all the know-hows of taxation and can make your company tax-exempt in the fraction of a second!