Tax season isn’t fun for anyone. Crunching numbers. Figuring out which forms you need. Trying to get in contact with the IRS. There’s a reason financial stress is one of the top stressors in America, leading to health, mental, and social problems, such as depression and strained relationships with loved ones. However, there’s no need to fear Uncle Sam knocking at your door. As long as you’re prepared, you’ll be able to get through tax season with no scrapes or bruises.
To help you file your taxes and put your fears behind you, take a look at these 4 tips below.
1. Know the Deadline
Above all else, you should know when the deadline is to file your taxes. Tax Day in America always falls on April 15, unless that date falls on a weekend day or holiday, in which case Tax Day will be moved to the following business day. If you forget the deadline and fail to pay your taxes on time, you could face hefty penalties and fines, which is an expensive cost for procrastinating on your taxes.
However, if you are part of the 7 million Americans who forget to file their taxes, you can apply for a free tax extension that will give you up to six months, until October 15, to file your taxes. So, if you can’t pay for your taxes or are waiting on certain documents, this extension will give you time to get your paperwork and money in.
But, if you fail to file or pay, you can face certain penalties and fees. These include the failure to file penalty and failure to pay penalty:
- Failure to File Fee: If you don’t file your tax return, you will be hit with a fee that’s 5 percent of your unpaid taxes for each month your return is late, up to 25 percent. This penalty begins the day after the deadline, and if you file more than 60 days late, you’ll pay a minimum of $135 or 100 percent of the taxes you owe, whichever is less.
- Failure to Pay Penalty: You can file your taxes, but if you owe money and forget to pay, you can face a failure to pay penalty. This penalty will charge you 0.5 percent of your unpaid taxes for each month late, up to 25 percent.
- Failure to File and Pay Penalty: If you fail to both file and pay your taxes, your failure to file penalty is reduced by your failure to pay penalty. So, it’s best to at least file your taxes, even if you can’t pay, to avoid extra fees and interest.
2. Explore Repayment Options
If you have unsettled tax debt from failing to pay taxes in past years, you can get an IRS installment agreement. An IRS installment agreement is a plan made with the IRS where you agree to make monthly payments until the tax debt, penalties, and interest are paid off, with an agreement that you will no longer fail to pay off your tax debts in the future.
3. Gather All Necessary Documents
One of the most stressful parts to filing taxes is gathering all the necessary documents needed to file your taxes. That’s why it’s crucial to stay organized throughout the year by making copies of necessary forms or uploading your documents onto cloud-based software that securely stores documents.
Additionally, if you run a business, it’s just as important to stay organized and ensure your business is properly listed on every document. Doing so will help protect your business from liabilities.
However, if you’re filing your individual taxes, having these documents on hand will ensure you get your tax return on time and don’t face any penalties:
- Form W-2: You must fill out this form for each job you received money from during the year, which shows the wages you’ve earned and taxes you’ve paid throughout the year.
- Form 1099 or W9 Forms: These forms are used to document if you received income from other sources besides a job, such as if you worked as an independent contractor or were self-employed, such as through your startup business
- 1098 Forms: These forms are used to itemize interest deductions, such as those for mortgages and other loans.
4. Know How to File Your Taxes
Lastly, it’s important to know how to file your taxes. There are numerous routes you can take to filing your taxes, such as going to a personal accountant, using an online tax filing software, or doing them yourself. If you do them yourself, take advantage of tax-free filing. The IRS offers Free File, where you simply choose whether you make above or below $66,000 and begin using their tax filing software.
Additionally, know you can file electronically. You can mail your tax information to the IRS, but it’s worth noting that the IRS website and many accredited online tax firms are safe and secure.
The Bottom Line
Filing your taxes doesn’t have to be scary. To avoid unnecessary stress, plan a budget well in advance just in case a worst-case scenario arises and you have a large tax bill to pay. Additionally, stay organized with all of your tax documents throughout the year and ease the filing process with tax filing services or software.