If you wonder whether you handle taxes the right way or there is some room for improvement of your tax-filing skills, it’s time to get familiar with all the ins and outs of dealing with „the tax man“. Here’s what you need to know about taxes, including key terms and useful tips.
The Right Way To File Taxes
To start with, you have to decide whether you are going to deal with taxes yourself or pay a visit to a professional tax preparer. In case your financial circumstances are pretty uncomplicated, it feels just natural to leverage the benefits of modern technologies, using one of many free online tax programs.
You can also research free options offered by various tax software companies, but as a rule, they cover only simple tax returns while all additional forms or add-ons are subject to extra charges. If your tax situation can be described as complex, which could range from selling some investments to starting a freelance job, then dealing with the IRS alone is not a good idea. You can waste a heck of a lot of time to make sure everything is in order and still end up fixing mistakes and paying hefty penalties. To avoid such an unlucky scenario, it is much wiser to work with a seasoned tax pro from the very outset.
The Best Time To File Your Taxes
Simple as it may sound, the earlier you start filing your taxes, the better your chances to get an early tax refund. The worst thing you can do is to wait until the very last moment, risking to miss the deadline and be responsible for penalties. In addition to that, should any issue with your tax refund arise, you will have to reconsider it in a hurry, which is far from being a stress-free experience.
Striving to meet the aforementioned deadline that is getting closer at the lightning speed, you might get too nervous to finish the job yourself and seek the help of professionals. Perhaps, you have already guessed that in this case, tax preparers will charge you more than they would do a month ago and for a good reason. You’d be surprised to know how many people wait until the last minute to file their taxes, so they are literally loaded with work.
What To Do If You Miss The Deadline
Even though it’s not the most pleasant situation, do not panic – it is too early to be devastated. Generally, your next move depends on whether you have taxes due or foresee getting money back via a tax refund check. The first state of play requires your immediate reaction – you should file and pay your taxes as soon as possible to avoid both a late-filed and late-payment penalty that together can cost you up to 5% per month.
Given that the failure-to-file penalty is more expensive, be quick with filing even if you cannot pay your taxes right away.
Getting A Tax Extension
If you believe you won’t be able to meet the tax deadline, the option of filing an extension is at your full disposal, giving you extra six months to avoid failure-to-file penalties. Just a heads up, this extension does not mean you are granted a postponement for payments. It only allows you to delay filing, so if you anticipate owing money, do your best to calculate the bill and pay it as soon as you can.
What To Do If You Can’t Pay Taxes
People often face various financial challenges, and taxes can exacerbate the problem. However, having tax debts is definitely not the way out, therefore you should make every effort to find an adequate solution. If the amount of your tax debt is relatively small, you can take advantage of your credit card to win some more time to pay off what you owe. Alternatively, think of a personal loan, all the more so, banks and credit unions have plenty of tax credit options on offer.
Well, you can also try your hand at dealing with the internal revenue service directly and ask for a specially tailored payment plan to avoid high interest rates. Another opportunity to solve the issue is to seek tax relief. The truth is that in reality, people trapped by financial constraints usually do not feel fit to fight alone, mainly seeking help from experienced tax attorneys, able to stop „the taxman“ from garnishing their wages or placing a levee on bank accounts.
How Long To Keep Tax Records
While the minimum timeframes for holding onto tax records is set between three and seven years for different tax forms and tax situations, the majority of experts agree that it is a great idea to digitize all required documents and keep them for at least 15 years. Some tax professionals even recommend retaining tax returns forever, for instance, in the form of PDF files, which can be easily fished out wherever there is a need.
Tax Terms You Should Know
- Withholding Tax
In short, this is an amount that employers withhold from employees’ paychecks to cover state and income taxes, as well as other commitments.
- Tax Subsidies
Just as its name says, a tax subsidy is a financial help paid by the government to lower your tax burden.
- Tax credits
Tax credits decrease your taxable income, making the amount you have to pay to the federal or state government smaller.
- Claiming a Dependent
This is the way to reduce your taxable income if you have a child, relative, or member of the household you provide financial support to.
- Tax return
It is the form every taxpayer files to summarize his/her income, expenses, investments and other tax-related details.
- Tax refund
This is the money you will get back if your tax liability is less than the amount you paid.
Although preparing your taxes is far from being plenty of fun, there is no way to skip this year-to-year activity. On the bright side, if you do your homework right, you can count on a hefty refund check – and isn’t it what you really want?
