Tax day is right around the corner. Are you ready?
Taxpayers will have an additional three days to file their taxes this year. Most people associate April 15 with the tax deadline, but tax day 2016 will fall on the 18th. The IRS received over 99 million returns in 2015, and issued over 77 million refunds.
What if your tax return won’t be among those filed by the deadline this year? What happens if you miss the tax deadline?
First, the good news. If you will be receiving a refund, you have up to three years to file your return in order to claim that refund.
However, if you will owe taxes, there are penalties for missing the tax deadline:
The late-filing fee is 5% of your balance. The penalty for paying your tax bill late is 0.5% of the balance you owe. If you file late and pay your balance late, you’ll be hit with both penalties.
Penalties will accrue for every month you don’t file your return or pay your tax bill.
If you know you will have trouble paying your tax bill in one lump sum, you can file a request for an installment agreement through the IRS. Keep in mind you will still need to file your return on time in order to apply for the installment plan.
If you’re confident in filing your own return, you can use one of the many tax filing software packages available, or you can file through the IRS’s Free File portal, available to taxpayers who earn $62,000 or less.
Even with those tools, you may still need more time. In that case, you can either file for an extension on your own or have your tax preparer do it on your behalf. The extension will grant you until Oct. 15th to prepare and file your return.
You’ll still need to pay your tax bill on time, however, in order to avoid late payment penalties.
There are times when missing the tax deadline is unavoidable. In that case, filing an extension would be to your benefit while you gather your tax paperwork and calculate how much tax you’ll owe.
April 18 is coming sooner than you think. Keep these tips in mind if you won’t be able to file your taxes on time. You lessen the impact of any penalties and still give yourself the extra time you need to file your return.
If you worked for cash in 2015, here are some important tips
Note: The advice in this post is not intended to replace the advice of a qualified tax preparer. Always seek professional input before preparing your own taxes.
Most of us at one time or another earn extra cash with a side gig. While this can help your bottom line, there are tax implications.
The 1099 form: If you worked for an individual or organization for cash, they must issue you a 1099 form if you earned over $600.00. You will need to report your earnings on your income tax form under “Misc. income.”
In some cases, a client or employer who paid you cash will go ahead and issue a 1099 even if you earned less than $600.00. This is preferable because record-keeping will be easier for you and there will be less chance of errors in reporting your income.
Either way, employers must mail out these forms no later than January 31st, so if you have not yet received yours, follow up immediately with your client or cash employer.
Why the 1099 is important: If there is a discrepancy between the earnings you reported to the IRS and the earnings reported by your client(s) and employer(s), processing your tax return will be delayed, along with any refunds.
At the same time, if the employer doesn’t report your earnings to the IRS, they, too, could face additional scrutiny and delays.
At the very least you’ll receive a letter from the IRS requesting correct information. At the very worst, it can trigger an audit or review.
If you’ve kept track of your earnings from each client and employer, be sure their income figures match your records.
Income and expense records: If you earned cash from a side gig in 2015, you’ll not only need to report your income, but you will also need to report your expenses.
Your tax preparer will attach either Schedule C or C-EZ to your tax return. If you are taking the DIY approach and filing your own taxes, you’ll need to complete Schedule SE to calculate your self-employment tax.
Keeping accurate income and expense records is key to filing an accurate return as well as calculating the correct amount of taxes you will owe. There are many apps and software programs that can help you track income and expenses such as Quickbooks, Harvest, or Excel.
Estimated Taxes: The amount of estimated taxes you may need to pay this year are based on your earnings in 2015. These taxes can be paid in quarterly installments or all at once. Your tax preparer can calculate your estimated tax.
Working for cash is a great way to help make ends meet. If 2015 was your first tax year working for cash, tax day will be different for you than in years past.
Have your taxes done by a professional and bring all of your 1099 forms, income/expense records, and any other documentation your tax preparer requests from you.
Don’t let the prospect of paying self-employment taxes scare you. Your tax preparer can help you in determining your estimated tax for this year.
You’ll avoid “sticker shock” and will be able to stay on top of your taxes. You’ll also avoid over-paying estimated taxes so you can keep the money where it belongs: with you.
By keeping accurate income and expense records you can make your side gig work for you and not for Uncle Sam.
Tax day doesn’t need to be stressful if you keep these five things in mind
No one relishes the idea of getting their taxes done. Between work, family, and other commitments, very few of us have the time. Show up unprepared on tax day, however, and you could be in for a stressful ride. Here are five things you need to do before tax day:
• Fill out the organizer from your tax preparer: You’ll typically receive it in the mail as early as January. Tax preparers are busy this time of year, so help them out by filling out the organizer form ahead of your appointment.
Tax day will go faster and be less stressful for everyone involved.
• Get organized: gather all of your income statements (W2s, 1099s, bank interest statements, stock/bond dividend statements, retirement income statements) and set them aside.
Your tax preparer will need them in order to file your return. If you are missing any of your income documents, contact the issuing party and request a duplicate.
• Set aside your mortgage interest statements: Your bank will issue a mortgage interest statement that will disclose how much interest you paid during the tax year. Since mortgage interest is deductible, your tax preparer will need it in order to prepare your return.
• Round up receipts for income and expenses if you’re self-employed: Better yet, if you have a spreadsheet that discloses your income and expenses, bring that with you to your tax prep appointment.
Your appointment will go faster and your tax preparer will be grateful. You can also transfer the figures from the spreadsheet to your tax organizer booklet.
• Gather receipts for any additional deductions: Gather receipts for child/dependent care, medical/dental expenses not covered by insurance, interest statements, student loan interest statements, and records for any other itemized deduction.
Your tax preparer will be able to determine whether or not you qualify for specific deductions, so be sure to provide all the needed information on the organizer form or bring all records with you on the day of your tax appointment.
• Most of all, take tax day in stride: No one ever looks forward to their tax appointment, but with a little advance organization, you could have a less stressful tax day. Allow plenty of time to get to and from your appointment, and allow plenty of time for your appointment. Have all the necessary paperwork that your tax preparer will need so they can prepare your return accurately and quickly.
If you’re creating your New Year’s resolutions, don’t forget to include resolutions for the new tax year. Getting off to a solid start with organization and sound tax planning practices will save you serious headaches at this time next year. Here are three New (Tax) Year’s resolutions to keep in mind as 2016 approaches.
1. Get organized
Now is the time to set up a filing and/or record-keeping system for all of your tax documentation, especially if you plan on itemizing your deductions in 2016, or are self-employed.
Keep all of your receipts and paperwork in one location, and set up a filing system that works best for you. Set aside a filing cabinet or folder if keeping papers copies of documents is more your style, or set up electronic folders if you plan on scanning your income documents.
If you are self-employed or have a side gig or tip income, set up a spreadsheet for recording your tips and miscellaneous income. Set up another spreadsheet for your expenses, and update it as the year progresses.
You will be able to refer to all of your records quickly when tax season rolls around next year.
2. File early
No one likes the idea of filing their taxes, but if you plan to file early, you can correct any errors you might find on your tax forms, such as your W2 or 1099 forms. Make sure these forms have your current address, and that your name and social security number are correct. By planning ahead of time, you can allow for the extra time should you need to have any of these forms corrected…no last-minute hassles.
Another benefit to filing early: you’ll get your refund earlier. As an early filer, you’ll also experience a quicker turn-around in processing and mailing your refund.
By filing early, you’ll also be less at risk for identity theft. The longer you wait, the more opportunity identity thieves have to file a fraudulent return in your name.
3. File for an extension
If you’re facing the Tax Year of Doom and the mountains of paperwork that goes along with it, consider filing for an extension. This is especially true if there are tax documents that will be delayed for any reason. If you know for certain that you will not be ready on tax day, filing an extension will relieve much of that tax-day stress.
An extension could buy you the extra time you need to get your tax documents in order and to receive documents that have been delayed for any reason (e.g. financial records related to a divorce, sale of property, trust or an estate). Your extension will expire on Oct. 15.
Wrap the year up right by getting a jump on tax day planning
Part 4 of 4
By now, you’ve become familiar with some tax breaks that you hadn’t thought of before. In part 4 of this series, we’ll take a look at even more tax breaks.
As with any tax matter, it’s best to check with a licensed tax professional with any questions regarding your eligibility for a specific tax deduction.
1. Accounting and tax prep fees: If you paid for tax prep software or paid a tax pro to prepare and file your taxes, you can deduct any fees associated with that service.
You may also deduct any fees associated with representation during an IRS audit or for any other tax-related matter.
You would list these fees under “miscellaneous deductions” on the Schedule A attachment for your federal tax return.
2. Substance abuse treatment: These costs can be deducted under the “medical and dental expense” portion of schedule A.
3. Legal fees connected to alimony: While you can’t deduct all of the legal fees associated with divorce, you can deduct the portion oflegal feesthat were associated with either receiving or paying alimony.
4. Mortgage prepayment penalties and late fees: If you paid off your mortgage early and were hit with a prepayment penalty, you can deduct that penalty under the “mortgage interest” portion of Schedule A.
If you made any late mortgage payments, you can also deduct your late payment penalties under “mortgage interest.
5. Personal liability insurance: If you must carry personal liability insurance as part of your employment or business, you can deduct any premium costs that are not reimbursed by your employer.
As with any tax matter, it’s best to check with a licensed tax pro regarding your unique tax scenario. You’ll need to meet certain income percentage guidelines to claim most of the deductions mentioned in this series.
Getting an early start to end of year tax planning will save you time and headaches in the long run.
If you will be claiming any itemized deductions for the tax year, be sure to keep any receipts or records connected with your deduction(s).
You’ll need them to prepare your tax return and you’ll also need to keep them beyond tax day in the event your return is selected for an audit.
With tax season just around the corner, now is a good time to locate a tax prep professional if you plan on having them prepare and file your tax return. If you’ve used the DIY approach in the past, finding a good tax pro can be intimidating. Keep in mind these tips when looking for a qualified tax pro:
Fee structure: An ethical tax pro won’t base their fees on refund percentages, or promise a large refund. Some tax pros will be charge a flat fee based on the complexity of your return, while others may bill at an hourly rate. Always ask about their fee structure up front so there will be no surprises on tax filing day.
In good standing: Always check with the Better Business Bureau and avoid tax pros who have bad reviews or numerous consumer complaints against them. If your tax pro is an IRS Enrolled Agent, verify this with the IRS Office of Enrollment. Unfortunately, it can take up to 60 days to process a verification request through the Office of Enrollment, so it’s best to start your search early.
Confirm they have a PTIN: Licensed tax pros must have a Preparer Tax Identification Number (PTIN) in order to prepare and file a return on your behalf. It’s also a good idea to ask if they participate in continuing education courses or other forms of professional development.
E-filing: A seasoned tax pro will have the capability of e-filing your returns. Any tax pro who has filed more than 10 returns is required to use the e-filing system.
Availability after tax day: An ethical tax pro is available after tax day for any questions on your return, or to help you follow up with the IRS, or to address any refund issues or questions on your return. Beware of a tax pro who isn’t available after you file your taxes.
They’re willing to wait: If your tax pro offers to file a return based only on your final paystub and not your W2, they’re in violation of IRS e-filing regulations. An ethical tax pro will ask to see all of your tax records, and if your W2 isn’t yet available, they will be willing to wait until you have your W2 and any other year-end tax records.
On Monday: A look at the different tax pros who can file a return on your behalf.
Tax season will be here before you know it. No sooner will the holiday rush be over and you’ll have to get ready for tax day. Identity thieves and other rip-off artists know this as well, and will be on the prowl for vulnerable people. Here’s how to avoid falling victim to a tax season scammer:
Never disclose personal information over the phone or by email unless you initiate the call yourself. A popular tax season scam involves identity thieves calling or emailing unsuspecting taxpayers and impersonating IRS agents. They will typically request your social security number in order to “verify” account or to determine whether or not you will be receiving a refund. Don’t fall for it.
If you receive such a call or email, don’t comply with their request and report the call or email to local law enforcement. The IRS will never call a taxpayer first. Their first line of contact with you will be via mail. It is then up to you to call them at the number listed on the letter or notice.
The IRS will also never correspond with you via email. No matter how “official” the fake IRS email appears to be, do not click on any links or reply to it in any way. Instead, forward it to local law enforcement and/or the IRS fraud investigation unit.
Safeguarding your Social Security Number(SSN) is the best defense against tax season scam artists. Never carry it in your purse or wallet; if they’re lost or stolen thieves can get their hands on your social security card and wreck havoc, sometimes destroying your credit rating by applying for credit accounts in your name.
Never give your SSN to just anyone: legitimate parties will only ask for it if it is required, such as your HR department at the time you’re hired, or the bank or IRS when establishing or verifying an account.
Use only reputable tax prep companies when filing your taxes. Ignore the ads on Craigslist before and during tax season. If you choose to have a professional prepare and file your return, make sure they are affiliated with either a large tax prep firm, a CPA practice, or tax law firm.
If you’re taking the DIY approach to tax prep this year, use only trusted online portals and apps. If a tax prep website or app looks shady, it most likely is shady.The IRS offers afree onlinetax prep suite through their website.
The months leading up to tax season and tax season itself is the peak period for identity thieves and assorted other scam artists. By protecting your private information and your SSN, you can protect yourself and your family from the long-term consequences of identity theft.
2015 is winding down and tax season will be here before you know it. Want to free yourself from the stress of last year’s tax day? Start organizing your paperwork now to get a jump on tax season. Your tax return prep will be painless by keeping these tips in mind:
Organize All of Your Records.
You’ll need to refer to last year’s return, so make sure you have a copy of that tax return handy. If you used DIY tax prep software, print out a copy of last year’s return and put in a safe place. Place it in a file, along with all documentation for income, expenses, and deductions:
*Paystubs: You’ll be comparing the year-end figure on your paystub with the information on your W2. Hang on to your current paystubs in the meantime.
*Receipts for deductions: If you’re going to itemize deductions, save all of the related receipts ( e.g., child/dependent care, homeowner’s deductions, medical/dental expenses).
*Receipts for business-related expenses: meals, mileage, supplies, payroll, office equipment, insurance, home office expenses.
*Award letters for unemployment and disability insurance
*Documentation verifying amount of child support you’ll be receiving or paying
*Bank statements verifying interest income and mortgage payments
*1098 and 1099 forms
*Social security income verification
Tuck everything away in a folder, adding to it as you receive receipts other needed documents. Use a productivity app or spreadsheet program to document income and expenses. When tax day rolls around, you can transfer the totals from the app or spreadsheet onto your tax return.
Remember you’ll need to report all of your income: base wages, tips, side-gig income, gambling winnings, and so on. Careful record-keeping of your income will prevent tax day errors later on.
Of course, everyone’s tax scenario is different, so if you have questions regarding your specific tax needs, it’s best to talk with a qualified tax advisor well in advance of tax season to make sure you’re on the right track.
With 2015 winding down and the busy holiday season just weeks away, it’s easy to set aside tax matters for another day. However, tax season will be here before you know it, so advance preparation is the key to avoiding a stressful tax day experience. Plan ahead, organize your documents, and tax day will go much more smoothly.
If the April 15th tax deadline makes you break out in a sweat, you’re not alone. While many tax preparers will send out a tax organizer form to fill out before your appointment, they aren’t of much use if you can’t locate your income, deduction and expense information. Here are some great ways to get organized ahead of time and reduce tax-day induced stress.
Keep Track: Fortunately, there are many useful software packages for tracking income and expenses such as Quicken or similar products. They vary from simple to complex, depending on your particular needs. Or you may want to keep your records by hand. This boils down to personal preference and convenience. The key is to set up a system you will use on a regular basis with minimal headaches. Make it painless, make it accessible and easy to use, and you will use it.
Electronic or paper? While most people prefer to scan paper items into an electronic file and toss the originals, much of it comes down to personal preference. The IRS has been accepting scanned documents since 1997. Keeping electronic files might be more appealing if you’re short on storage space or if you don’t want the hassle of keeping track of small pieces of paper.
Create a system…and stick with it: Most taxpayers will do just fine with a simple filing system or portfolio with multiple slots for paperwork. Label each section with categories such as “Income” “Bank Statements” and so forth. They key is to update your filing system on a regular basis. Bank statements can be filed once you are done reconciling your account, for example.
No matter how you configure your filing system, make sure you use it consistently. Don’t fall back into the habit of stuffing paperwork into a box or random folder never to see the light of day until April 15th.
Customize: If you are a taxpayer who also itemizes deductions each year, be sure to account for those categories as well. For example, if you make frequent charitable contributions of either goods or funds, be sure to file those receipts in the proper file as soon as you receive them and document then. Same goes for medical and child care expenses if you are eligible to deduct those.
By having a separate sub-file for each category, filing your income taxes will be much easier as everything is right where you need it when you need it. That tax organizer form that was sent out last year that made you break out into a cold sweat? No problem this time.
Be meticulous: If you are self-employed, a homeowner with multiple rental properties or another individual with receipts and expenses in multiple categories, create a sub-file for each category. For example, set up a file for each rental property where you can stash mortgage statements, tax bills, repair receipts, and other expenses. You can break out the categories even further by assigning a sub-file for each rental property, e.g. “Rent-Green Ave. property” and “Repairs-Green Ave. property” and so on.
If you are self-employed, be sure to set up sub-files for your income and expenses. If you have multiple clients, set up files and sub-files for each one. For example, set up a main file for your client, and then sub-files for income and expenses related to that account. Regardless of whether these items are recorded electronically or by hand, it helps to keep the receipts organized and easily available. When you tax preparer asks, “Do you have that receipt for March travel expenses related to the Garcia account?” nothing feels better than to reach into your files and say, “Yes, I do. It’s right here.”
Your tax preparer will love you. Guaranteed. If you file your own taxes, you will love yourself come April 15th.
Keep it safe: It’s always a good idea to keep receipts, paid invoices and other tax data in a safe place. While an employer can issue a duplicate W2 should yours ever be destroyed, other documents, such as receipts, are not as replaceable. Consider keeping your tax files in a fire-proof box or safe. At the very least, stash your tax documents in a safe place out of reach of children and pets, and where they can be out of harm’s way. Nothing adds to the stress of filing day quite like trying to decipher the dollar amount printed on a coffee-stained receipt for that closet full of clothes you donated earlier this year.
However you choose to organize your tax data, the key is to get organized and stay organized. Tax day is much less intimidating with time spent organizing your tax data throughout the year. In fact, you may just get so organized that you will want to file before April 15th. Really.
Do you have some tax document organizing tips that have worked for you? Leave us a note in the comment section below.