Category: Tax Preparation

You are familiar with tax liability, which refers to the amount of tax an individual or business owes to the government based on their taxable income, deductions, credits, and other factors. In this article, we will provide a comprehensive on what is tax liability, how it is calculated, some examples, and ways to reduce it.

Understanding Tax Liability

Tax liability is an essential aspect of taxation. It varies depending on the type of taxes applicable, the taxpayer’s income level, the tax bracket, and the deductions and credits available to them. It is calculated based on the applicable tax rates and the taxpayer’s taxable income.

Taxable income includes all sources of income, such as wages, salaries, self-employment income, investment income, rental income, and other sources. Deductions and credits are subtracted from the taxable income to determine the final liability.

Tax deductions are expenses that can be subtracted from the taxable income to reduce the overall tax liability. Some standard tax deductions include mortgage interest, charitable donations, state and local taxes, and medical expenses.

Tax credits, on the other hand, are a dollar-for-dollar reduction in tax liability. Some common tax credits include child tax credit, earned income tax credit, and education tax credit. Tax credits can significantly reduce tax liability, making it an essential factor to consider while calculating tax liability.

How to Calculate Your Tax Liability

You need to be familiar with how to calculate tax liability accurately. It is calculated by multiplying the applicable tax rate with the taxpayer’s taxable income. The tax rates vary depending on the taxpayer’s filing status and income level.

Standard deductions for 2023 are:

• $13,850 for single filers
• $13,850 for married couples filing separately
• $20,800 for heads of households
• $27,700 for married couples filing jointly

2023 Tax Brackets

To calculate the it, multiply the taxable income by the applicable tax rate and then subtract any applicable tax deductions and credits.

An example demonstrates this…

Let’s look at an example of how a hypothetical flow-through entity would calculate its federal income tax liability using these tables. Assume Helly’s Widgets earned $300,000 in taxable income in 2022, and Helly files a joint tax return with his wife, Bendy.

Helly’s tax liability would be:

$30,427 + 24% of the amount in excess of $178,150 (or $29,244).

The total tax due for your friend Helly is $30,427 + $29,244 = $59,671.

Important: To calculate your client’s state tax liability, locate your client’s state’s standard deductions and tax information and follow the state’s instructions. Some states have a flat tax, while others have graduated brackets.

How to Reduce Your Tax Liability

You should be aware of various ways to reduce tax liability. Here are some ways to reduce tax liability:

Maximize tax deductions

As discussed earlier, tax deductions can significantly reduce tax liability. Therefore, it is essential to identify and maximize all tax deductions available such as

• Business expenses
• Using your car for business purposes
• Using your home for business purposes
• Itemized deductions
• Education deductions
• Healthcare deductions
• Investment deductions

Contributing to retirement accounts

Contributing to retirement accounts such as 401(k), IRA, or Roth IRA can reduce the taxable income, thereby reducing the tax liability.

Take advantage of tax credits

Tax credits such as child tax credit, earned income tax credit, and education tax credit can significantly reduce tax liability. Therefore, it is essential to take advantage of all eligible tax credits, such as:

• Family and dependent credits
• Income and savings credits
• Homeowner credits
• Healthcare credits
• Education credits

Plan for capital gains and losses

Capital gains and losses can significantly impact tax liability. By planning for them in advance, taxpayers can reduce their tax liability. For example, if a taxpayer has realized capital gains, they can sell some investments at a loss to offset the gains and reduce the tax liability. Capital gains are taxed differently depending on whether they are long-term or short-term. If your client held an asset for one year or less and sold it for a profit, the gain is considered a short-term capital gain and is included in their income.

If they hold an asset for more than a year and sell it for a profit, it is considered a long-term capital gain and is taxed. There are capital gains thresholds, which are analogous to income tax brackets.

2023 Capital Gains Tax

Charitable donations

Donating to charities is a noble act and helps reduce tax liability. Taxpayers can deduct charitable donations from their taxable income, reducing it.

Use a tax professional

It is always recommended to seek advice from a tax professional to identify and maximize all tax-saving opportunities. A tax professional can guide tax deductions, credits, and other tax-saving strategies that can significantly reduce tax liability.

When it comes to tax deductions, you can either itemize (add up all of your client’s deductions) or take one standard deduction (a single lump sum deduction of $12,950 for single taxpayers, $19,400 for heads of households, or $25,900 for married filing jointly).

The standard deduction is the best option if you don’t have many deductions to claim.

If you have a lot of deductions, you should probably itemize. Check out The Big List of Small Business Tax Deductions to ensure you claim every possible deduction.

Check out The Big List of U.S. Small Business Tax Credits to see if you qualify for any tax breaks.

What is Federal Income Tax Liability?

Federal income tax liability is the amount of federal income tax that an individual or business owes to the federal government based on their taxable income. Federal tax is a tax levied by the federal government on individuals, businesses, and other entities that earn income. The federal government uses tax revenue to fund various programs and services such as defence, social security, and healthcare.

Federal tax liability is calculated based on the taxpayer’s taxable income, which is their total income minus any deductions or exemptions they are eligible for. The tax rate applied to the taxable income varies based on the taxpayer’s income bracket.

It is important to note that federal income tax liability is just one component of the total tax liability that an individual or business may owe. Other taxes, such as state and local taxes, may also contribute to the total tax liability.

It is essential to have a comprehensive understanding of federal income tax liability as it is a crucial component of the overall tax liability. This knowledge can provide better tax planning and advice to clients, ultimately leading to a better client experience.

In order to reduce federal income tax liability, individuals and businesses can employ various strategies such as maximizing deductions, contributing to retirement accounts, taking advantage of tax credits, and planning for capital gains and losses. It is also essential to stay up-to-date on changes in tax laws and regulations, as they can significantly impact federal income tax liability.

Deferred Tax Liability

In addition to the current tax liability, taxpayers may also have a deferred tax liability. Deferred tax liability refers to the taxes that will be payable in the future due to temporary differences between book and tax accounting. For example, if a business records revenue in its books but defers recognition for tax purposes, it will have a deferred tax liability.

Deferred tax liabilities can be reduced by accelerating expenses or delaying revenue recognition. However, it is essential to note that these actions can significantly impact the financial statements and should be carefully evaluated.

The final road…

Understanding tax liability is crucial for individuals and businesses to ensure they are compliant with tax laws and regulations. You play a significant role in guiding your clients toward minimizing their tax liability. By following the tips mentioned above, taxpayers can effectively reduce their tax liability and save money.

As a leading outsourcing firm, Unison Globus offers expert tax preparation and accounting services to help your clients navigate the complex world of tax liabilities. Our team of experienced tax professionals can assist you in maximizing your clients’ tax deductions, taking advantage of tax credits, and identifying opportunities for reducing their tax liability. We also provide timely and accurate tax preparation and filing services, so you can focus on growing your business while we take care of the rest.

Contact Unison Globus today to learn more about our tax preparation and accounting services, and take advantage of our free trial offer to experience the difference for yourself. Let us help you and your clients save time, money, and stress by streamlining your tax processes and ensuring compliance with all relevant tax laws and regulations.

Taxpayers only pay tax on last year’s earnings. If the tax is over 10,000 rupees, it must be paid within the Act’s deadline. The Act includes Advance Tax provisions to ensure income reaches the government quickly.

What is Tax Instalment Payment?

Tax instalment payment is payment made in advance to reduce your upcoming tax liability. If you are a sole proprietor and expect to owe more than $3,000 in taxes this year (in the form of income tax or HST), you must make anticipated tax payments each quarter.

Tax instalments are not taxes for the current year which can be paid in instalments, unless you arrange a payment plan with CRA.

Due dates

Whether you are obliged to pay income tax instalments or HST payments (or both), these installments have separate due dates.

HST

April 30th

July 31st

October 31st

January 31st

INCOME TAX

March 15th

June 15th

September 15th

December 15th

* Installments of HST are due one month following the end of each financial quarter. These dates are based on the assumption that you run your business as a sole proprietor and that your fiscal year ends on December 31.

Don’t worry if you missed your payment – You can avoid paying interest on late payments by either paying your next installment early or by paying more than the required amount for that installment. You will be able to earn “installment credit interest” if you do so.

Overpaid your installment – Good news! You are eligible for a refund! Or the option to have the excess payment applied to the installments for the next year!

Tax installment payments allow you to be ahead of your tax responsibilities so you don’t have to worry at year’s end. Get tax preparation outsourcing help from professionals here.

Unison Globus has pool of experienced tax preparers who are ready to help you with your Tax Installment Payment.

W2 vs 1099

With a rise from 12.9 million in 2017 to 23.9 million in 2021, the number of independent contractors in the US is rising.

As the number of people working as freelancers or independent contractors continues to rise, you may need to adjust how you file your taxes this year. It can be confusing to know which tax form to use to report payments to an independent contractor vs. an employee, even if you know that 1099 is used to report payments to the former.

A different set of laws than an independent contractor binds a full-time employee.

Independent contractors are not considered employees. One recruits Independent contractors on a project-by-project basis or to complete duties within a set period of time.

This means they must supply their own tools and supplies for the task and that the client has no say in the manner or location. Businesses and independent freelancers should always have a formal contract when working together.

On the other hand, a full-time worker regularly reports to work or performs their duties at an agreed-upon offsite location. In addition to having to withhold taxes for things like Social Security, health insurance, and more, employers also get to decide when, when, and how their workers get their jobs done.

Comparing 1099 Workers vs. W-2 Employees

Checkout main differences between 1099 and W-2 employees below.

With so much emphasis on compensation and legal protections for workers, it’s easy to forget that the correct classification of your personnel determines which tax form must be filed with the Internal Revenue Service.

How does the IRS decide who qualifies as a 1099 worker and who must file a W2?

The Internal Revenue Service (IRS) compiled a set of questions that can be used to classify employees as 1099 contractors or employees. In general, these aid employers in determining how much sway they have on an employee’s autonomy. Several factors are as follows:

Behavioral

Does the employer have the ability to mandate how much work an employee must do or how they must do it?

Financial

Who has the ultimate decision-making authority over the worker’s salary, equipment and supplies, and expense reimbursement: the company paying the bill?

Type of Relationship

Did the employer and employee enter a written contract outlining the terms of their relationship, including compensation, perks, and time off? Is this a continuing business between them?

With the potential for severe penalties and misclassification at stake, all businesses must take their time while answering these questions in preparation for filing their worldwide payroll. Misclassification can lead to lawsuits and severe damage to their reputation. Thus, it can be challenging to attract top staff and subject them to potentially hefty fines for infractions of tax legislation.

Fill out an SS-8 form and submit it to the IRS if you need help deciding how to classify an employee.

You could be debating right now whether it would be better for your business to recruit a 1099 worker or a W-2 worker. However, no matter your company’s standing, you can benefit financially.

What is a 1099 employee?

A 1099 worker is an independent contractor and not a full-time employee. 1099 employees, also known as freelancers, independent contractors, and self-employed workers, pay their own income taxes to the IRS each year.

Since 1099 employees are considered independent contractors, they are free to work for anybody they choose and are not limited to a single employer. 1099 workers often charge per contract because they simultaneously provide services to multiple companies.

To give some examples of 1099 employees:

• Freelance writers who work on an assignment basis without set hours
• Consultants who help your company with a clear start and end date
• Gig workers who perform services receive payment through an app
• Freelance designers and developers who work project by project

For tax purposes, every single sort of 1099 worker (regardless of industry, the scope of work, or level of expertise) must complete a 1099 form.

1099 tax form

Businesses that pay independent contractors or other non-employees throughout the tax year must file IRS Form 1099-MISC during the tax filing season. 1099 form is typically unnecessary for individual tax filers. The only time this is different is if you are a small business owner and you have hired an independent contractor. If not, the burden of completing and filing 1099 forms falls on businesses and financial institutions by January 31st.

There are different types of 1099 employee forms to fill out for different types of contractors:

• Form 1099 – These are the forms used by firms to report payments made to a freelancer or contractor within a given accounting period.

• Form 1099-MISC: Miscellaneous Income – If you have worked as an independent contractor or if you are self-employed with multiple clients, please fill out this form. Complete a separate 1099-MISC form for each customer who paid $600 or more. A company should complete a form for the IRS (commonly called Copy A) and provide a copy to the contractor (called Copy B)

• Form 1096 – Complete 1096 form to provide a summary of all 1099s you filed and sent to the IRS by the end of January.

Earnings reported on 1099 forms are generally not subject to withholding taxes. This is a significant distinction between independent contractors, who receive 1099 forms, and regular employees, who receive W-2 forms.

Streamline 1099 filing and issue forms seamlessly. Reach out for stress-free solutions now!

What Is a W-2 employee?

In most cases, workers fall into the W-2 category.

An employee who obtains a W-2 tax form from their employer is known as a W-2 employee. W-2 workers are the most common type of workers in the United States.

They clock in daily, do their jobs, and get salary biweekly or monthly. W-2 employees sign an agreement for an extended period of time for ongoing employment, while 1099 employees work contract to contract.

When hiring a full-time employee, businesses have more say over their hours, responsibilities, and workload than they do with 1099 workers. Employers withhold Social Security and Medicare benefits on W-2 forms, which employees are entitled to receive.

Or any other position where your company has the authority to choose the employee’s schedule and working conditions, in which case they will be a W-2 employee. Then, you will be responsible for providing them with the necessary equipment and training. An employer must file a W-2 tax form for each employee who is eligible to receive a W-2 wage statement.

W-2 tax form

The W-2 documents an employee’s earnings, benefits, and tax withholdings for a given tax year. Any employee, whether they worked for you part-time or full-time, must have a W-2 filled out for them by their employer. Any worker who received $600 or more in taxable wages or who had taxes withheld from their pay should receive a W-2 from their employer.

One must file W-2s by January 31st of the following year, the same deadline as for 1099 employees.

Employers with W-2 workers need to deduct and contribute to the federal government through Social Security and Medicare taxes.

W2 vs 1099: Which is better for you?

Despite the seeming complexity, it often helps to compare the two states visually.

Both W-2 employees and independent contractors can contribute to your company’s success, but it’s up to you to determine which is best for you. Think about the following factors when you weigh your options:

• Is this a one-time project with limited repercussions, or will it have an ongoing impact on the business?
• Is someone available immediately with a good cultural fit and has skills? Can you hire a freelancer to fill in while you search for the ideal candidate?
• How much money do you think the new employee should make? Is it better for the business to hire a freelancer or contractor instead of paying a full-time employee in order to save money on overhead?

But there are other factors to think about while talking about W2 vs 1099. A W-2 employee is a good choice if it’s critical for your company that employees stick to a strict schedule, perform only approved duties, and follow established procedures.

Generally speaking, executives are classified as W-2 employees. If you’re not in a leadership position, though, hiring a contractor with the right set of abilities can help you get more done in less time.

If you want to make the best option possible, like with any major business decision, you must consider all the aspects. Let Us Handle Your 1099 Filing – Contact Us!

FAQs – W2 vs 1099

Can you pay a 1099 employee hourly?

You’ll need to discuss payment conditions with the person you’re hiring. Usually, you will negotiate a contract that specifies how and when they will get payment. The most prevalent payment options for 1099 employees are hourly and project-based.

What is a statutory employee on W-2?

Statutory workers can submit claims for work-related costs. A statutory employee, sometimes known as an independent contractor. Then, one gets treatment for the same for tax withholding purposes as a typical employee. The employee is category is statutory if the employer and employee both contribute to Medicare and Social Security.

Do 1099 workers receive social security?

Employers who recruit 1099 workers do not deduct Social Security or Medicare contributions from the worker’s pay. Everyone is entitled to Social Security. Independent contractors, however, pay the entire share of Social Security to the IRS.

When are 1099s due to contractors?

Form 1099s are due by January 31st. If you paid a contractor $600 or more for services delivered throughout the year, you’d need to file a 1099-NEC. Then, submit a copy to your contractor. One need to supply information on January 31st, the year following payment.

How do 1099 employees pay taxes?

Independent contractors submit their earnings to the IRS four times a year with Form 1040-ES, Estimated Tax for Individuals. This is sufficient to pay their federal income tax and self-employment tax obligations. Depending on their state, they may also need to pay state and local taxes.

What happens if you don’t file the 1099 form?

You will typically be notified if the IRS still needs to receive your 1099 form. If you have unpaid taxes, they will retrospectively charge you fines. Also, interest will start on the first day they think you owe tax. Penalties per form can vary from $50 to $280.

Can a W-2 employee also be a self-employed contractor?

A W-2 employee can become a 1099 independent contractor if they meet IRS requirements. A maintenance technician, for example, may own a supply store. One can offer them equipment for the business.

How many 1099 employees may a business employ?

As long as businesses identify 1099 workers correctly, they may hire as many independent contractors as they like. When hiring a 1099 employee, you must have a written contract outlining their role within the company. Contractors earning over $600 a year must submit Form 1099-MISC to the IRS and provide a copy to themselves.

Do you have to pay overtime to 1099 employees?

Contractors are independent workers. The Fair Labor Standards Act (FLSA) says that only workers are subject to minimum pay and overtime regulations. This means that 1099 workers won’t get compensation for working above 40 hours per week.

Want to outsource Payroll Tax? Get tax preparation outsourcing services from experts now.

Tax Brackets 2022

The Internal Revenue Service (IRS) annually changes federal income tax rates, exemptions, and thresholds. These numbers apply to the parts of the tax law that are changed every year to account for inflation.

For the 2022 tax year, the top tax rate for individual taxpayers will still be 37%, and the standard deduction, tax bracket ranges, other deductions, and phase-outs will be changed each year to account for inflation.

Federal Tax Brackets – Overview

Most federal tax brackets are progressive, meaning the tax rate goes up as the income increases.

But this doesn’t mean that clients have to pay more in taxes because they can use these many deductions and credits to reduce the amount of tax they owe.

When federal tax brackets were made in 1913, they primarily aimed to ensure Americans were taxed relatively and to help pay for wars. But as the years went by, special interest groups pushed for more and more tax breaks. As a result, in 2019, 91 corporations, including 60 of the Fortune 500, paid no taxes in 2018.

This happened because of the Tax Cuts and Jobs Act (TCJA), which then-President Donald Trump signed in December 2017 with the support of a Republican House and Senate. The TCJA cut the corporate tax rate for good, but it only cut the rates for individuals for a short time.

This was because people were worried about how much more debt these new tax cuts would add to the U.S.’s already massive debt. When the law passed, the thought passed that the debt would grow by as much as $1.9 trillion over the next ten years.

In reality, the debt grew by almost $1 trillion every year from 2018 to 2020. With the COVID-19 pandemic coming in March 2020, the spending needed to stop it, and the bad effects it will have on the economy, the federal budget deficits are rising to levels not seen since World War II.

High-income earners had their taxes cut the most, while low-income earners also had their taxes cut, but they might have to pay more if and when the individual tax changes end in 2025, as planned. Given how unpopular it is to raise taxes—as shown by the fact that the Bush tax cuts from 2001 were extended past their expiration date in 2010—the TCJA’s rates could also stay in place after 2025.

Federal Tax Brackets – History

The federal tax bracket was made when the 16th Amendment was passed in 1913.

In 1913, the highest tax rate was 1% on incomes over $3,000, with an additional 6% tax on incomes over $500,000.

But it didn’t take long before the rate went up a lot. As the costs of World War I became clear by 1918, the highest tax rate reached 77%. During the 1920s, when times were good, rates went back down, but they went back up during the Great Depression.

During the debates about the Troubled Asset Relief Program (TARP) at the start of the Great Recession in 2008, this was often used as an example of what not to do in hard times.

At the end of World War II, the highest tax rate was 94%. The rate stayed high in the years that followed, averaging around 70%. Starting with the Reagan administration in the 1980s, rates have been decreasing. As of 2021, there are seven federal tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

The U.S. debt has grown a lot since the beginning of the 21st century. This is probably not a coincidence since the country has fought in several wars while lowering tax rates instead of raising them, as it did during previous wars.

How Tax Bracket Works – Recap

In the United States, we have a “progressive tax system,” which means that not all income is taxed at the same rate.

The tax rate on the first 10 percent of income is the lowest. The money your clients make above that, up to a certain amount, is taxed at the next higher rate (12%), and so on until they make so much that they don’t have to pay taxes. (I’m sorry for making fun of billionaires.)

It’s a bit of a misnomer to say someone is in the 22% tax bracket. That really means that they pay 22% of the part of their income that is taxed at the highest rate, which is only the money that falls into that tax bracket and not all of the money they make. This is called the marginal tax rate in tax terms.

Tax Bracket 2022

The tax bracket is based on how much money the customer makes and how much you as their CPA file (single, married filing jointly, married filing separately, head of household). The IRS changes tax brackets and other tax rules annually to consider inflation.

As you look at the tax brackets below, remember that the standard deduction, which is $12,550 for a single person and $25,500 for a married couple filing jointly, is not taxed. Since the amount they’re taxed on isn’t what they’re really making, this makes everyone’s tax rates a little bit lower.

To compare, here are the tax brackets for 2021:

Tax Bracket 2022 – Example

Let’s start with a married couple with $190,000 in taxable income and filing a joint tax return. Keep in mind that these numbers are made before any deductions are made! They’ll have to:

10% federal income tax on the first $20,550 of income (which comes to $2,055 in taxes)
12% on dollars $20,551 up to $83,550 ($7,559.88 in taxes)
22% on $81,050 up to $172,750 ($20,174 in taxes)
24% on $172,750 up to $190,00 ($4,140 in taxes)

Before any deductions, this couple will pay a total of $33,928.88 in federal income taxes. This is about 18% of their income on average.

In 2022, a single person who earns $60,000 will pay:

On the first $10,275 of income, the federal government takes 10%, or $1,027.50.
12% of money between $10,276 and $41,775 (taxes of $3,779.88)
22% of $41,776 to $60,000 (taxes of $4,009.28)

Before deductions, a single American pays $8,816.66 in federal income tax, which is 15% of their income. For small talk at a cocktail party, this person can say that they are “in the 22% tax bracket” if the rate of tax they pay on their next dollar of income is 22%.

What’s the Big Deal?

Even though tax brackets are helpful, one should always try to make as much money as possible. Barrett says that for every dollar you make, you get more money. The only thing that changes is how much of that extra dollar you get to keep.

The most important thing about knowing the tax bracket is that the customer can use it to keep as much money as possible in the lower brackets. You do this by lowering their income that is taxed.

This can be done most effectively by Putting money into tax-deferred retirement accounts like a traditional IRA, 401(k), or 403(b). Your customers won’t have to pay taxes on those dollars in the year you give them. They’ll have to pay income taxes when they start taking money out. But they should be in a lower tax bracket by then, right?

Using flexible spending accounts (FSAs), including FSAs for the care of dependents and health savings accounts (HSAs). The taxable income for the year will also go down by the amount your customers save in these ways. Plus, if they use the money to pay for certain costs, they don’t have to pay taxes on it.

Take advantage of as many tax breaks as you can. When you take a tax deduction, the amount is taken off of the taxable income of the customer. Most people take the standard deduction, an amount you can automatically deduct from the customers’ income taxes without itemizing.

For 2022, the IRS has also raised the standard deduction:

• In 2022, the standard deduction for single taxpayers and married people who file separately will be $12,950. This is $400 more than it was in 2021.
• The standard deduction for married couples filing jointly is now $25,900, an increase of $800 from 2021.
• Heads of households can now deduct $19,400, which is $600 more than in 2021.

Even though there is no limit on itemized deductions, the general rule is that you should take the standard deduction if the total of the itemized deductions is less than the standard deduction.

How to Calculate Taxable Income

Here are the three steps you need to take to figure out how much of the income is taxed:

• Add up all of the earnings to figure out the gross income.
• Subtract tax adjustments from the adjusted gross income to get the adjusted gross income.
• Subtract the deductions from the income to get the taxable income.

First, add all the money your customer expected to make in 2021. This includes money from full-time jobs, part-time jobs, freelance work, rental properties, and other sources. Then, to figure out the gross income, take out any income the tax code says they don’t have to pay taxes on, like money from a life insurance policy.

Then, take any changes away from their total income. Adjustments could include money put into a traditional IRA, interest paid on a student loan, or money put into a health savings account. This number is the gross income after adjustments.

The last step is to take the adjusted gross income and subtract any deductions to get the taxable income. You can take the standard deduction, which is $12,550 for single filers and $18,800 for heads of household and married couples filing jointly, or itemize their deductions. This is the taxable income, which you can use to determine which tax bracket they fall into. However, remember that investment income is taxed differently than other income.

Take the gross income and subtract things like alimony, half of the self-employment taxes, the teacher’s education deduction, and the student loan interest deduction if they are teachers. These costs will lower the gross income, giving them their adjusted gross income and the amount of money that is taxed.

Marginal Tax Rate vs. Effective Tax Rate

On the federal income tax bracket, you see the marginal tax rate at the top. So, for example, a person with a taxable income of $55,000 will pay 22% in taxes. But not all of the taxable income is taxed at this rate.

Instead, in this example, the marginal tax rate applies only to taxable income beyond $40,525 in 2021, and your effective tax rate is as follows:

10% x $9,950 = $995

12% x ($40,525 – $9,950) = $3,669

22% x ($55,000 – $40,525) = $3,184.50

In this case, a person with $55,000 in taxable income owes $7,848.50 in taxes, which means their effective tax rate is about 14%.

Lower the Tax Rate – Steady Approach

You can legally cut the tax bill if you know the tax bracket. If the taxable income is right on the line between two tax brackets, there are a few ways to keep your client in the lower bracket and lower their tax bill.

Getting paid later and putting money into accounts like health savings accounts or retirement funds are two common ways to stay in a lower tax bracket. These strategies can help taxpayers lower their taxable income, which could help them keep a lower rate.

If a taxpayer has the option of recognizing or not recognizing some income in a particular year, such as with year-end bonuses payable out the week of Christmas or in early January, knowing where they are in their tax bracket and how much room there is before they hit that tax bracket could help them make a decision.

But to add, “Don’t worry too much about your tax bracket.”

FAQs – Tax Brackets

What is a head of household?

There is a special tax filing status called “head of household.” The IRS says taxpayers can’t be married or live with their spouse most of the year if they want to be the head of the household. Taxpayers also have to pay at least half the costs of caring for someone who qualifies, like a child or parent.

Did the tax rates go up or down?

Tax laws are often changed. Each tax bracket’s income bands are changed annually to account for inflation. This usually means that the income bands move up. In 2020, a single person who filed taxes paid 10% of their income up to $9,875; in 2021, they paid 10% of their income up to $9,950. The government sometimes changes the number of tax brackets or the amount of tax in each bracket. In 2017, the highest tax bracket was 39.7%, but in 2018, it dropped to 37%.

What were the tax rates for 2021?

The Internal Revenue Service (IRS) set the seven federal tax brackets for 2021 as 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The U.S. has a progressive federal tax system, which means that the lowest earners pay 20% of their income in taxes, while the highest earners pay 37%.

What are the tax rates for 2022?

The federal tax brackets for 2022 will be the same as in 2021. There are still a total of seven brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37% as the highest. In 2022, though, the income limits for all tax brackets increased to keep up with rising prices. So, how much tax you pay depends on how much money you make and how you file your taxes, like as a single filer or a married couple filing jointly.

What changed about the standard deductions for the 2022 tax year?
In 2022, the standard deduction went up. The IRS has set the following amounts for standard deductions:

$12,950 for single filers
$12,950 for married people who file separate tax returns
$19,400 for people in charge of a family
$25,900 if both people are married and file together
$25,900 for spouses who died.

In conclusion – Tax Brackets 2022

Every year, usually in November, the IRS changes tax brackets, standard deductions, tax credits, IRA rules, and other things that affect federal taxes for the next tax year. It’s important to know about any changes the IRS makes so that taxpayers can file their taxes with the help of a qualified CPA right and avoid paying too much or too little. If you are a CPA and want to do tax preparation outsourcing, then contact Unison Globus to assist you.

You May Like:

How to cope with Tax-time stress?

Multistate Tax Filing: What Does One Need to Know?

The Ultimate Tax Preparation Checklist 2022

If you’re seeking best Expat tax services outsourcing firm with international knowledge and experience that helps American expats with taxes – from virtually anywhere in the world than you are at the right place.

Understanding the U.S. tax system can be a challenging process. Moreover, as an American living abroad, the data is much more confusing and opaque. The reason is that regardless of where they live or work, nearly every American citizen is required by law to submit a Federal Income Tax Return.

Nearly all overseas Americans must also file a foreign tax return in their home country. Most expats must file additional U.S. tax forms, such as the FBAR and FATCA.

If you are a U.S. resident living abroad, you are likely aware of the little-known fact that you must file and/or pay taxes annually to the IRS. Yes, guys, the IRS does impose expat taxes.

Possibly, you send your tax forms to experts for processing, or you physically do them yourself. The likelihood is, however, that you are or will migrate to the “new age” of expat tax preparation using internet software. Yet, among the numerous options, which is the best U.S. tax software for expats?

In this recent age of fake news and too much information, it can be hard to sort through all the online options for the best expat tax software tools.

Today, we will tell you not to worry.

In 2022, it will become clear how to submit taxes while residing abroad and which online program to use. We will review the best expat tax service software options, to determine who and what is truly superior.

2022 Best Expat Tax Services

KPMG

KPMG has mastered comprehensive tax management, which includes all types of taxation, including those that are direct, indirect, and individual. Their strategy for minimizing taxes takes into account multiple jurisdictions—the group and other offices in the firm’s global network offer top-notch national and international tax guidance.

The experts in this field come from many walks of life. They have the expertise to engage with our clients and serve as their advisors across various business processes because of their deep knowledge of various industries and service lines and their exposure to other cultures and advanced training.

PWC

PwC’s Tax and Legal Services help businesses filter out irrelevant information and anticipate potential policy shifts. With the reach of a seamlessly integrated worldwide network, they can be present wherever you need them to be, offering deep tax technical understanding and the crucial context you need to make compliant and well-informed decisions that will help you advance your operations.

PwC creates world-class integrated tax and legal strategy and is there for you every step of the way, everywhere you go. With these methods, you can bypass lengthy planning and jump straight into the action.

Deloitte – Cross-border taxation service provider

Deloitte uses its resources of an international network to provide comprehensive and actionable tax solutions to foreign clients facing international tax challenges arising from outbound and inbound investment transactions.

Consultations on international tax matters involving deals conducted in other countries of Deloitte aids companies by assisting with –

• Tax advice and consultation
• Foreign direct investment strategy advice 
• Advice on the tax consequences of introducing new or altering existing group funding arrangements.
• Analyzing how different laws may affect global corporations (in Japan and elsewhere).

EY

To help you succeed in this era of fast change, the tax experts at EY offer services across all tax disciplines. To help you prosper in this time of fast change, the tax experts at EY have consolidated their efforts around the world to provide you with cohesive services across all tax specializations.

Regarding your tax needs, EY is the perfect partner because of its combination of great expertise and experience with the necessary people and technology platforms. EY is an expert in all things tax. They provide clients with a secure interface and a set charge for basic expat tax returns. Use EY’s expertise, understanding, and commercial acumen for your benefit.

H&R Block

Whether you do your taxes on your own or with a professional, H&R Block can ensure that they are done correctly. A U.S. citizen or Green Card holder is expected to file U.S. expat taxes annually, regardless of whether or not they owe money.

From the convenience of your own home, you can do your taxes online at H&R Block, either independently or with the assistance of tax professionals specializing in international taxation. H&R Block ensures that you receive all of the credits and deductions to which you are entitled, no matter where you are in the world. Block is a convenient online service for filing U.S. tax returns.

You may file your own taxes with their straightforward program, which is made to help you save both time and money by locating tax breaks that apply just to foreign nationals.

Turbo Tax

TurboTax is developed for American taxpayers. Their support for US Expats is limited because they are “Tax Prep USA Support.” Form 2555, Foreign Earned Income Exclusion (FEIE), lets you an exempt foreign income from US tax.

Turbotax US doesn’t supply Form 8833 for Treaty Based Disclosures, which expats need. TurboTax tells you to download Form 8833 and attach it to your tax return. Then, mail the papers and pay postage. TurboTax lacks Form 8621 for reporting passive investment companies.

If you own passive overseas investment business, you must do this. US expats with overseas mutual funds or passive investments must use Form 8621 to record distributions. Turbotax s best for many US expats. A new moving abroad tax return online software is required to fit the needs of US Americans abroad.

FreeTaxUSA

TaxHawk, Inc. operates the popular tax filing platform FreeTaxUSA. One of the most popular tax preparation websites, FreeTaxUSA, was founded in 2001 by a certified public accountant and a group of software engineers.

FreeTaxUSA is an official IRS e-file provider and an early contributor to the IRS Free File Alliance. Securely submitting millions of federal tax forms to the IRS is nothing new for them. The FreeTaxUSA program is updated annually to comply with changes in tax law at the federal and state levels.

Changes to the tax code and the availability of new credits and deductions are reflected in FreeTaxUSA. After an update to the program, it is submitted to the Internal Revenue Service (IRS) and each state for approval. By doing so, FreeTaxUSA is prepared for the upcoming tax season.

Boldr Impact

Boldr is an outsourcing partner that builds custom solutions for snowballing companies. It has solutions for data management, customer experience, and sales enablement.

Boldr is also trying to change the rules of outsourcing and lead its industry toward focusing on making an impact. Why? Because they exist to help people grow and develop by having a positive and measurable effect on their clients, companies, and communities.

They’re not like most BPOs. Boldr is the world’s largest B-Corp-certified BPO, and a purpose drives PEO. It has offices in South Africa, the United States, the Philippines, and Canada. Boldr gives back to the communities where they live and work with their time and some of the money they make. Boldr also works on making the world a better place this way.

Elabram

Elabram Group is in charge of the global business of Elabram HR Solution, Elabram Telco, and Axdif. It has been around for more than 20 years and specializes in human resources and telecommunications consulting.

Elabram Group offers HR solutions in Southeast Asia. They focus on human resources solution outsourcing, executive search, and Axdif. At Elabram, the hiring process is taken very seriously.

It chooses “crème de la crème” talent by hand to match the skills that clients and associates need. More importantly, they look at the skills of both parties to make sure they are compatible and that the talent can meet the job requirements. Elabram Group’s four business divisions are constantly improving and developing new ways to meet customer needs.

Unison Globus

Unison Globus provides financial and tax services globally. It is a leader in expatriate taxation services, excels in Tax on Expats, Non-Resident Alien (NRI) Taxation/Tax Services, Tax Services for Expats in the U.S., U.K., Australia, and Other Countries, and Expat Tax Preparation.

We follow procedures that help expats and their Indian employers. Unison Globus, a CPA firm with international experience, can help American expats almost anywhere.

Unison Globus’s knowledge, straightforward approach, and dedication to reducing tax liabilities have won us praise. In addition to federal, state, and business tax returns, they provide tax planning for Americans living and working abroad and a streamlined system for those who are behind.

Since the early 2000s, Unison Globus has become an online-only firm, targeting the U.S. expatriate market. We offer tax advising, planning, and compliance services to individuals, partnerships, corporations, trusts, and estates subject to the United States tax system, regardless of where they reside or conduct business.

In addition, we have created a list of the top 25 things that U.S. expats must remember while paying their taxes.

Do Americans living abroad have to pay U.S. taxes?

Yes, practically all U.S. citizens must submit a U.S. federal tax return, regardless of where they reside. As long as your international income exceeds the reporting level, this applies.

This global revenue may include:

• Interest
• Wages
• Dividends
• Salary
• Rental Income

No matter how you file, if you are self-employed, the filing threshold is approximately $400. Even if your income is below the limit for your filing status, you may still have to file.

For example, if you get certain tax credits or refunds, you will have to file even if you don’t meet the other requirements.

Resigning your citizenship may not allow you to avoid paying U.S. taxes
Before expats can renounce their citizenship to avoid the burden of submitting U.S. taxes, they must demonstrate that they have met their tax obligations for at least five years before the date of renunciation.

Please remember that if you give up your citizenship, you may have to pay an exit tax based on your income and net worth. It’s the IRS’s way of ensuring you don’t give up your citizenship to avoid paying taxes.

The vast majority of Americans living abroad do not have any tax liabilities in the United States

While almost all expats are required to submit a U.S. tax return, most American expats owe no U.S. taxes. To ensure that Americans living overseas are not taxed twice on the same income, the U.S. has enacted several essential deductions, exclusions, and credits. Many foreigners can eliminate their U.S. tax liability using these tax benefits.

The majority of expats can offset or eliminate their foreign-earned income with the following:

1. Foreign Earned Income Exclusion

2. Foreign Housing Exclusion

3. Foreign Tax Credit

Do not pay tax twice on your money! U.S. taxpayers may claim the Foreign Tax Credit against foreign-taxed income.

To qualify for the exclusions, you must be an official expat with foreign-earned income and file a tax return to demonstrate your eligibility.

You must file a U.S. tax return even if you have no tax liability.

The foreign earned income exclusion is conditional on meeting a residency test

The Physical Presence Test necessitates that you be physically present in a foreign nation for 330/365 days.

So, under the Bona Fide Residence Test, it is mandatory for you to live abroad for at least 1 year or so with no plans to return to the United States in the near future. This means that temporary foreign contractors and people on assignment do not qualify.

Due to the foreign earned income exclusion, nonresidents living outside the United States may be able to avoid paying U.S. federal income tax altogether

The Foreign Earned Income Exclusion may allow you to avoid up to $109,000 of foreign earned income from U.S. taxation. This is the most prevalent method by which expats decrease or eliminate their U.S. tax liability.

The Foreign Housing Exclusion may also allow you to eliminate certain housing expenses, such as utilities and rent.

The automatic exclusion of earned income from abroad does not apply

To qualify for the Foreign Earned Income Exclusion, you must meet the eligibility criteria and file Form 2555 or 2555-EZ.

Once you choose to utilise the Foreign Earned Income Exclusion, it stays in effect and you must report it on your annual tax return. However, if you decide you no longer wish to use the exception, you cannot claim it for the next five tax years without IRS approval.

To be considered an expat, you must keep detailed travel logs

If you want to pass the Physical Presence Test, keep careful track of the days you are away. You have to live in a foreign nation for 330 days. Therefore any time spent flying or sailing to the United States will not qualify. Keep track of the exact travel dates.

A minor calculation error might cost you tens of thousands of dollars on your U.S. expat tax return!

A request for a time extension may be submitted if additional time is required for eligibility determination

Many expats who go abroad at the end of the year worry that they won’t be able to use the Foreign Earned Income Exclusion and will miss out on big tax savings. If you think you will be eligible soon, you can ask for more time until October 15th or file Form 2350 to get even more time.

You cannot use the Foreign Tax Credit to offset excluded Income

If you opt to exclude a portion of your income under the Foreign Earned Income Exclusion, you cannot claim it on that income.

For example, if you exclude $108,700 from your income, you are left with $30,800. Only the taxes paid on the remaining income are deducted. This prohibits double-dipping in the eyes of the Internal Revenue Service!

If you couldn’t deduct the total foreign income taxes you paid or owed, you can carry them forward for up to 10 years or back to the year before.

Foreigners’ the U.S. sourced income is not automatically exempt from taxation

Therefore, income produced on U.S. soil cannot be deducted from U.S. taxes under the Foreign Earned Income Exclusion since it is not foreign-earned income.

If you have to pay taxes to another country on that income, you may be able to use it to reduce the U.S. taxes you owe.

Long-term consequences of not reporting your children as dependents on your U.S. expat tax return

Children born overseas to non-US parents may be eligible to be claimed as dependents on your federal tax return.

Even though the Child Tax Credit(s) you’ll get can help you financially, remember that your children are now U.S. citizens and will always have to pay U.S. taxes unless they give up their citizenship as adults.

Foreign nationals are granted an automatic tax-filing extension through June 15th

U.S. taxpayers living abroad on the tax filing deadline of April 18th, 2022, have until June 15th to submit their returns. Pay taxes to the United States before April 18th to avoid fines and interest.

If you relocate back to the United States, you may still be eligible for some U.S. expat deductions and exclusions for that year, but you must file your taxes by April 18th because you are a U.S. resident.

An expat’s taxes in the United States could be decreased if they have a child claimed as a dependent

Citizens and permanent residents with dependent U.S. children can benefit greatly from the Child Tax Credit, which can sometimes even result in a return! All dependent children must possess a Social Security number to qualify for the credit.

The Child and Dependent Care Credit may also allow you to deduct child care expenses. To use this credit, you must have earned revenue. If you excluded all of your earned income through the Foreign Earned Income Exclusion, you would not be eligible for the Child Care Credit.

Filing a state tax return while abroad may be necessary for residents of certain states

Whether or not you need to file a state tax return as an expat depends on whether or not you plan to return. Each state has different rules surrounding domicile and permanent place of abode, which determine whether you are a resident and must submit taxes.

For instance, Massachusetts prohibits changing one’s domicile through temporary or longer-than-expected absences. You cannot plan to return.”

Even if you have no plans to return, many states in the United States continue to tax former residents until they “sever ties” with the state. Depending on the state, this process can be easy or hard. Some states make it difficult to leave their tax jurisdiction.

Even if you reside in another country, for instance, a state may levy taxes if:

• Your spouse or child resides there.
• They issued your current license or identification card.
• There your vehicle is registered
• You maintain a bank account there.
• There, you are enrolled to vote.
• There you own property.

The following states are renowned for taxing former residents:

• California
• New Mexico
• South Carolina
• Virginia

To know the specifics of the tax laws in your state, you should talk to a tax expert.

To avoid paying taxes twice, Americans living abroad might use tax treaties

By decreasing or eliminating U.S. taxes on certain forms of income for expatriates, income tax treaties prevent double taxation of Americans residing abroad. The U.S. now has tax treaties with 69 nations.

Since tax benefits differ per nation, expats should check the treaties with their host nation to see how they will be taxed. As with any legal instrument, tax treaties can be challenging to comprehend. If you don’t know which rules apply to you, you should talk to a tax expert.

If the value of your foreign financial assets exceeds the FBAR filing threshold, you must submit an FBAR

FinCEN Form 114, also called the FBAR, is a way for the U.S. to stop tax frauds from hiding money abroad. If your international bank accounts have a total balance exceeding $10,000, you must file. When evaluating your international bank accounts, consider pensions, investments, and accounts for which you have signatory authority but no control.

The FBAR is electronically submitted via the BSA e-filing system. Even if the account(s) exceeded $10,000 for just one day (or one minute! ), you must file an FBAR. The FBAR is filed independently of your U.S. expatriate tax return.

Another way U.S. citizens living abroad might reduce their tax liability is through the foreign tax credit

If you live in a country with a high tax rate or your income is higher than Foreign Tax Credit. Then, the Foreign Earned Income Exclusion may help you lower or eliminate your U.S. tax bill.

The International Tax Credit is a dollar-for-dollar credit against the foreign taxes you pay. To elect, you must file Form 1116.

Numerous persons are qualified for the international tax credit and the foreign earned income exclusion; however, if taxpayers are also eligible for the child tax credit, selecting the foreign tax credit over the exclusion will typically result in greater tax savings.

The FBAR Deadline is April 15th, the same day as taxes are due

Its deadline is April 18th, with an automatic extension to October 17th. The FBAR is filed in addition to the standard tax return.

U.S. expats can file their taxes and FBARs late without being penalized

Years after moving abroad, many expats realized they were always required to file in the United States. They may fear severe penalties and be hesitant to file late tax returns.

The IRS offers an amnesty program to assist foreigners in becoming compliant without incurring penalties. The Streamlined Filing Compliance Procedures is its name.

To use this application, you only need to:

• File Foreign Bank Account Reports for the previous 6 years
• Self-certify that your failure to file was not a deliberate act of defiance.
• Submit the three most recent delinquent income tax returns and pay any delinquent taxes owed during that period.

This will bring you into conformity with IRS laws in the majority of circumstances. It is ideal for expats who were previously uninformed of their U.S. tax filing responsibilities.

The Foreign Account Tax Compliance Act (FATCA) form 8938 may Require your attention

FATCA is similar to FBAR because it aims to prohibit U.S. taxpayers from hiding money and assets in offshore accounts. Form 8938 must be filed if the amount of certain financial assets exceeds the filing threshold (which varies by filing status and residency).

FATCA and FBAR reporting requirements are distinct yet comparable. You may be obliged to file either FBAR or FATCA, or neither!

Your social security benefits will not be affected if you decide to retire outside the country

If you are contemplating an overseas retirement, rest assured that you can collect your Social Security payments in virtually any nation. There are only a few countries where Social Security payments are frequently unavailable, namely:

• Azerbaijan
• Belarus
• Cuba
• Kazakhstan
• North Korea
• Moldova
• Uzbekistan
• Turkmenistan
• Kyrgyzstan
• Tajikistan

However, even if you reside in one of these nations, you can still recover any arrears owed to you if you transfer to a different nation.

For example, suppose you relocated to Cuba. You would not be eligible to receive U.S. Social Security payments while residing in Cuba.

However, if you relocated to Costa Rica a few years later, you would be able to receive any Social Security benefits you were denied while living in Cuba.

Agreements on totals of the country you choose to pay your social security taxes to will impact your finances

The United States has agreements with 28 nations outlining which country should receive Social Security payments.

The agreements generally permit the use of earned credits in the computation of benefits in the other country. Without such an arrangement, you may be required to pay into two systems yet obtain only one benefit.

One’s U.S. tax return must include information on rental income

Report foreign and domestic rental income to the IRS. However, many property-related charges might mitigate an expatriate’s tax liability.

Immediate deductibility exists for home repairs, but improvements require more time. How do you determine the distinction? Repairs get the property back to the way it was when it was first bought, while improvements make the property worth more or make it last longer.

Despite their differences, you must keep track of the costs associated with repairs and renovations to your rental property. After selling your property, you can deduct the cost of repairs and upgrades when calculating capital gains or losses on your expat taxes.

Mistakes on prior U.S. tax returns are correctable

Mistakes happen. Using form 1040-X, you must file an amended return for the tax year in question if you discover you did not report all of your income or if you did not claim all of your allowable deductions.

The best action is to file an adjustment before the IRS discovers the error, as penalties are typically less severe. Once the initial return has been submitted, the clock starts ticking, and updated returns must typically be filed by a specific date to be eligible for a credit or refund.

The United States government may tax your social security payments

You must include your Social Security benefits as an expatriate income on your U.S. tax return. Some individuals’ benefits will be taxed, while others will not. If you have another income source, your benefits will often be taxed. However, the United States may not tax your Social Security benefits if you reside in specified countries. This consists of:

• Canada
• Egypt
• Israel
• Germany
• UK
• Ireland
• Romania

The regulations in each country are different. Consult an expert with specialization in taxation for expats for more information.

Remember that even if your Social Security benefits are taxed, only 85% of the total amount is a taxable income.

Before committing, know your expat tax service

We hope this list of questions and factors will assist you in locating an expat tax accountant or firm to prepare your U.S. tax returns. Enjoy the peace of mind from knowing professionals will handle everything with care.

Please book a consultation with us to know more about us at [email protected].