Understanding these key elements can reduce your tax bill – or score you the largest tax refund – and ensure that you dodge any failure-to-file or late-payment penalties and fees.
Whether it’s your first time or you’re trying to improve your existing tax-filing process, here’s what to know about filing taxes the right way, including answers to common tax questions.
How to File Taxes
First, determine who will file your taxes. Is it you? Will you use an online tax preparation system, such as TurboTax? How about visiting a professional tax preparer?
Speak with the Right Financial Advisor For You
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If your financial situation is simple, filing taxes through a tax software system may be a good option. In fact, eligible taxpayers can file their taxes for free through many online tax programs. For the best method to file taxes for free, check out the software companies offering free returns through the Internal Revenue Service’s Free File system, which is available to filers making $69,000 or less in adjusted gross income in 2019.
Some tax software companies also offer their own free filing options for simple tax returns, but you’ll likely be charged extra fees for attaching additional forms, such as those needed to report self-employment income. For filers who don’t qualify or who choose to pay for a more deluxe tax-return preparation package, expect to pay between $50 and $100 for software to file your federal and state forms. You’ll pay even more if you select add-ons, such as a review from a tax professional or premium software packages.
For more complex tax situations – say you started freelancing this year or sold some investments – visiting a professional preparer might be wise. Experts recommend working with a certified public accountant, called a CPA, or an enrolled agent. “They have the licenses, the special training, the continuing education – these are the tax pros that are up on the laws,” says Eva Rosenberg, a Los Angeles-based enrolled agent and founder of TaxMama.com.
When Can I Start Filing Taxes?
The IRS starts accepting tax returns this year on Jan. 27. If you’re anticipating a refund, you may want to start filing as soon as possible.
You’ll need to wait until you receive the necessary forms, such as your W-2 income statement and 1099 forms, which detail your earnings from various sources this year. If you claim the earned income tax credit or additional child tax credit, your refund may also be delayed, says Mark Luscombe, Chicago-based principal federal tax analyst at Wolters Kluwer Tax & Accounting. That’s because those credits have historically been taken advantage of by fraudsters, so the IRS takes additional time to review those claims.
When Are Taxes Due?
Tax Day this year – for 2019 income – is April 15, 2020. If you file for an extension, your due date is Oct. 15, 2020.
Typically, Tax Day occurs on April 15. But if that date lands on a weekend or on Emancipation Day, which is observed in the District of Columbia, Tax Day may be pushed back to April 16, April 17 or even April 18. While it’s always nice to have extra days to file your taxes, savvy filers won’t wait until the final weekend to submit tax returns. They’ll start working on their tax forms well in advance, experts say, to make sure that no paperwork or important forms are lost in the mad scramble to file on time. Filing early also reduces the time during which a thief can file taxes in your name – and steal your refund.
What if I Miss the Tax-Filing Deadline?
If you missed the deadline for filing taxes, don’t panic. Your next steps hinge on whether you anticipate owing taxes or getting money back through a tax refund check. “The consequences are very different if you have taxes due versus if you have a refund,” says Juan Montes, enrolled agent with TheTaxProblem.com, a firm with offices in Ceres and San Jose, California.
If you expect to get a refund, you’re still legally required to file your return and should do so as soon as possible, Montes says. But the IRS probably won’t hassle you over the money it owes you. Remember that you have three years from the tax deadline to collect the money you’re owed, but the sooner you do it, the better.
If you anticipate owing taxes, you’re in a stickier situation. “File that return as soon as you possibly can and pay those taxes as soon as you can,” says Jackie Perlman, principal tax research analyst at The Tax Institute at H&R Block. Delaying tax payment and filing can result in two financial penalties. You’ll pay a late-filing penalty of up to 5% of unpaid taxes each month, up to a maximum of 25%. The penalty for failure to pay on time is 0.5% of unpaid taxes. “If both the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5% per month,” according to the IRS. Interest will also continue to accrue on the unpaid amount and compound daily until you pay off the bill.
The quicker you can file your taxes, the better, even if you can’t pay all you owe right away, experts say. That’s because the failure-to-file penalty is pricier than the failure-to-pay penalty……Read more>>