5 Things To Do To Avoid A Post-Traumatic #TaxSeason

     Everyone finally gets to take a moment to catch their breath after all the preparation they put into (or paid for) preparing their tax return.  Finalizing the paperwork is both scary and relieving.  But now that it’s over, what to do next?  Just sit around for another 12 months until it's time to start scrambling forms together again?  No. Whether you are stressed about your tax liability or wondering what to do with that large sum of money, here are 5 things you can do to prepare for next year.

Refinancing

The Real Estate industry is all abuzz about how low the rates are starting off 2015.  Remember though, a financial move that could reduce your payments or interest affects your tax liability at the end of the year.  Reducing your interest rate reduces your itemized deductions, this could lead to a larger amount owed to Uncle Sam come next April 15.  If you do some preemptive accounting, you can suitably tailor your withholdings or estimated tax payments throughout the year.  Avoiding that jaw dropping liability takes a little more planning than crossing your fingers and hoping for the best.

Installments

If your tax bill is too large for you to be able to pay it all in one lump sum, you can request an installment agreement or payment plan.  If you’re unable to pay your tax bill because of a singular event, filling out the proper forms should be enough.  If you often find yourself falling short of your tax bill, it’s time to start thinking of increasing your estimated payments or withholdings.  The IRS has been willing to combine previous installment plans with new ones, but the third time is not the charm in this case.  To read about these plans visit http://www.irs.gov/Individuals/Payment-Plans-Installment-Agreements.

Secure Your Income for Retirement

Why not make the maximum contribution to your retirement fund.  Whichever works best for you, either a traditional IRA or a Roth IRA, you’ll save money in taxes by allocating the funds to your retirement.  A Health Savings Account (HSA) is also a savvy way to increase your deductions and put your hard earned money to work for you.

Unintended Savings 

Keep saving that big return!  Uncle Sam held on to it for you all year,   if you can live without it, a big return can be good for putting away in your emergency fund, college savings for your child or a large home repair you know is coming down the road.

Unemployment

Unfortunately, if you’re collecting unemployment checks, you still have to pay taxes on that income.  You can request federal withholding from these checks to cover that amount.

     As long as you do a little preparation throughout the year, paying taxes won’t be as much of a burden come April.  Tax laws are ever-changing, so being up to date on what’s relevant this year will help you plan according to their benefits or disadvantages.

3 Things To Remember When Filing An Extension

April 15 is fast approaching and some might not be ready to file yet.  Fear not, anyone can apply for an extension. Yes, even you.  There are a three things to know first before filing for an extension. 

1.  Form 4868 is what you need to file in lieu of your Federal Income Tax Return.  You can file it by mail or electronically, as long as it’s in by April 15 you will have an automatic 6 month extension to file.

2.  Remember that this form is just an extension to file, not an extension to pay taxes.  You must have an estimate of the amount you owe and send it when filing for an extension to avoid any late fees or penalties.  Any underpayment of taxes not paid by April 15 is subject to late fees and interest.

3.  The purpose of this form isn’t just to procrastinate until October.  The time is meant to allow for complete and accurate filing without assessing a late filing penalty.  The extra time granted is usually used to seek professional advice about your financial situation.

There are many benefits to requesting an extension to file your income taxes.  It’s a great way to avoid the busy rush of tax season and your tax professional will more likely have time after mid-April.  The most important thing to remember is that it’s an extension of time to file your return, not to pay taxes due. 

To find out more information about filing an extension please visit this link with some really great information provided by the IRS

The Risks of Missing Tax Deadlines

Haven’t done your taxes yet? You’re not the only one, but what happens if you miss a tax deadline? Do you go to jail? Even though the IRS can be one of the scarier branches of the government, it doesn’t work quite like that and there is some flexibility on how and when you file. 

Can’t make the deadline because of an extreme circumstance? You can file an extension to file your taxes later on, however you need to pay at least 90% of your tax bill before April 16th, otherwise you will be hit with a late payment penalty. In other words, you still need to calculate how much you owe in taxes even when you file a tax extension. 

Filing a tax extension doesn’t necessarily mean you get a free pass to not pay them until you feel like it, like I said before, you need to pay the majority of it off before April 16th or you’ll start accruing interest charges. What you owe will accrue interest, starting at .5% of your bill the first day that you’re late. Also, there will be a 3% compounding interest fee on the unpaid balance. 

So let’s say you don’t file you taxes and you don’t file an extension, you could be facing a penalty of 5% to 25% of your tax bill. If you wait more than 60 days you’ll be charged $135 or 100% of the taxes you owe, whichever is less. This only applies when you owe money, if you don’t you don’t get a penalty at all but this should not serve as encouragement to miss deadlines because if you wait too long you may not qualify for a refund at all, more on that later. 

People who do file their taxes but didn’t pay for them by the deadline also get penalized but not quite as harshly as those who have missed these deadlines. The percentage added on is .25% for outstanding balances as long as you have a payment agreement in place which can cost anywhere between $52-$105 to apply for. 

What happens when you don’t file or pay taxes? This is the LAST scenario that you want to be in but if this ends up happening to you the IRS will take control of the situation. They'll calculate what you owe and you’ll have all of the fees mentioned above for not filing and not paying on time. If the government owes you taxes and you have waited more than three years, you won’t get your money back so time is always of the essence when dealing with the IRS. In very extreme situations you may qualify for a Offer in Compromise which is basically a reduced tax bill, but you have to prove that you are going through extreme financial hardship to qualify.

When you can’t come to an agreement with the IRS they can actually levy a federal tax lien on your finances which can mess up your credit in more ways than one. You don’t want to be in this situation EVER because this means they could take the taxes that you owe from your Bank Account, Retirement, Social Security and even your wages. Being proactive about filing taxes even if you’re filing late is better than getting to this point with the IRS. As an accountant and someone who deals with helping with people with their taxes, I can tell you that you need to be proactive about your taxes rather than just letting it go for a few years and have to deal with garnished wages.