Taxes are an inevitable part of our lives and they come due every year, whether we like it or not. The dread that comes with filing our tax forms is often accompanied by confusion as there are a multitude of scenarios for each person's individual tax needs depending on income, state of residence, any dependents, student loans, unemployment, government stimulus payments, and more.
Plus, there's that question of what to do with extra money if you do get a refund, what you should do if you can't pay your tax bill, or how to handle a tax filing extension. Having tax questions is common. Read up on the answers to these questions and more information you should know before filing your tax return.
Whether your work status has been impacted by mass layoffs this year or you have been out of work for other reasons, you may have been among the millions of Americans who received unemployment benefits.
Although these benefits offer some much-needed cash to help you pay your bills, the income could also, unfortunately, cause issues at tax time because unemployment benefits are considered to be taxable income, and if you didn’t withhold enough, you could owe money when you file your tax return. (Use this IRS form to change your withholding.)
If you are receiving unemployment, you should get form 1099-G by the end of January from the agency that paid your unemployment benefits. The form will specify how much income you received and the amount you withheld for taxes. Be sure to hold on to these details, as you’ll need them to file your tax return.
While it’s too late to change last year’s withholding percentage, you can still benefit from filing your tax return early. If you owe money, filing sooner will give you more time to save before the April payment deadline (the deadlines are subject to change every year so be sure to go here to verify tax deadline day).
No one wants to overpay on their taxes or leave money on the table. First, review your W-4, which is the form you fill out and give to your employer when you start a job that specifies how much tax should be withheld from your paycheck. If you’re receiving a big bill during tax time, you may not be withholding enough of your pay. Another idea is to increase your 401K contributions since the IRS doesn’t tax what you funnel into that retirement plan. Contributing into a 529 plan, which sets money aside for your child’s college tuition, is a similar concept to lower your tax bill. Lastly, if your employer offers an FSA (flexible spending account) then make use of it! This allows for tax-free dollars to be moved from your pay and into an account that you then use to pay for medical expenses.
If you’re looking for a little tax help in the form of more time, the IRS allows a six-month filing extension for anyone who needs more time to prepare their federal return. An extension would push the deadline from April to October, and you must submit a formal request to receive one. You don’t have to explain why you’re asking for the extension, and the IRS will contact you only if your request is denied. This may be the help with taxes you’re looking for, as long as you just need some extra time.
While an extension may offer more time to file your return, it doesn’t apply to your tax payment, which will accrue interest after the deadline. You should estimate and pay any owed taxes by the April tax deadline to help avoid possible penalties. According to the IRS, the failure-to-pay penalty is 0.5% per month up to a maximum 25% of your unpaid balance, until you pay off your bill in full. If the tax help you’re looking for is more involved than receiving some extra time, free tax advice can be found on the IRS website.
Most wonder, “when do I get my refund” but what if you’re not getting one at all? Once you finish your taxes and get a projected estimate of taxes owed, it can be frustrating to learn you won’t be getting a tax refund – or worse, that you have an unexpected tax bill. Fortunately, it may be possible to improve your outcome in both cases.
Start by double-checking your tax return for ways to boost your refund or lower what you owe through tax credits and deductions. For example, if you donated money to qualified organizations, you may deduct up to $300 of your cash contributions. Other commonly missed savings opportunities may include credits for your dependents, credits for low-to-moderate earners, and deductions for mortgage points.
If you've rechecked your tax return and still haven't lowered what you owe, there are a couple of courses of action you can take.
Head over to USA.gov to learn about your tax refund status.
If, on the other hand, you’ve filed your taxes and learned you’re getting a refund, it can be welcome and exciting news. But now the question becomes: What should you do with that money?
While it may be tempting to spend your refund on a dream vacation or by making big purchases you've been putting off, splurging on travel or other desires could cause you to miss out on opportunities to strengthen your finances.
Still have holiday debt or other lingering balances left over from last year? Then a refund offers you an excellent opportunity to pay down high-interest credit cards. Use your refund to get rid of your credit card debt. Consider using either the debt snowball or debt avalanche methods, which are proven strategies to help you meet your debt payoff goals.
Another idea for using your tax refund is to create an emergency fund or to pad your savings. While experts recommend setting aside three to six months’ worth of expenses, any amount could make a difference, especially when you're surprised with an unexpected expense or bill.
Another savvy way to use your refund is home maintenance. If you have been ignoring a home repair due to financial constraints, you could use your refund to stop it from becoming a bigger, more costly problem in the future.
Then, after taking care of the basics, consider indulging in some small, fun reward. Taking the time to reward yourself when your budget allows can make it easier to stick with long-term financial goals.
Tax refunds are reportedly 13% lower this year. A large refund is often a representation of the amount you overpaid to the government the previous year. You may have made some tweaks to your deductions on your W-4 that caused you to receive those funds in your paychecks instead of a lump sum in the form of a tax return.
Tax time can be nerve-wracking and stressful, especially if you owe money and cannot afford to pay. In this case, the IRS may be willing to work with you. Start by calling the IRS phone number at 800-829-1040 to discuss your options. Depending on your situation, you may qualify for a short-term extension, an individual payment plan, or an offer in compromise. You may even be able to temporarily delay the collection process until you can afford payments.
Try to avoid future tax stress and unwanted bills, check your tax withholding, and adjust as needed. If you’re self-employed or a contract worker, you can make quarterly estimated tax payments throughout the year.
If all else fails, it may be worth your time and also be a huge stress reliever to hire a tax professional to help you with your tax woes. If you're not sure where to start, the IRS offers great advice on learning which kind of preparer you need, and how to check their credentials.
If you have questions about this year’s taxes or filing, visit IRS.gov or seek assistance from a qualified tax professional. We are not providing tax advice and every situation is unique, therefore professional tax help should be sought out.
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