Every citizen needs to pay taxes. But not every citizen takes the time to get to know why we pay taxes, how to calculate taxes and where our taxes go. Educating yourself about taxes is important so that you don’t “overpay.” Also, there are times when the Internal Revenue Service (IRS) gives out tax refunds. The thing is everybody wants a tax refund, but not a lot want to know more about taxes. So here are the seven basic things you need to know about filing tax returns.
1. Tax Calendar
You definitely have to know the tax calendar—when you can start paying and when the last day is. Remember that the government is entitled to collect penalties for late payments. You can start paying as early as January 23 and end on April 18. The deadline is usually April 15 but this year that falls on a Saturday. Meanwhile, April 17 is Emancipation Day. So taxpayers have three extra days to prepare their taxes. You can ask for an extension for the filing of the tax return and you may have an extra six months. However, you need to pay your taxes within the timeline.
2. Free Tax Help
A lot of people are impatient to do the math when it comes to filing tax returns. For those who receive an income of $64,000 a year, there is a Free File Software for you. This is a software that will help you prepare your tax without giving you a headache. According to the IRS, about 70 percent of taxpayers are qualified to get assistance. The government increased the qualification this year. It used to be just $62,000 a year. Because it’s already in the computer, you can also send your tax reforms electronically. According to some experts, doing so also opens the possibility of getting tax refunds earlier.
For those who are not eligible to get the free software, they can still get help—but maybe not for free. There are so many programs available especially during tax season. You can even find a cheaper one because of the many companies offering the software.
3. Delay in Tax Refunds
One of the reasons a number of taxpayers file their tax returns early is so that they can get their refunds early as well. But this year, there is some delay in the release of the refunds because of updates in the law governing taxes. Part of the reason for this change is the increasing cases of identity thefts. The government wants to prevent more cases so that it is stricter with processing. According to Time magazine, the government is using at least 20 data elements on tax returns this year to prevent identity theft.
Be careful when filing online as the additional security data may mean you will get locked out following a number of failed log-in attempts. This should be reason enough for you to file earlier, aside from the motivation to get a refund earlier.
4. Increased Penalty for Failure to Get Obamacare
The controversial Obamacare is already in full effect so that if you failed to get health insurance even though you can afford to get one, you will be liable to pay penalty, according to the Affordable Care Act. Penalty for failure to get the insurance in 2016 is higher than in 2015. The increase is more than 100 percent. In 2015, if you failed to get health insurance, you were liable to pay the penalty of $325 per adult and $162.50 for children under 18. For 2016 and this year, the penalty has increased to $357.50 per child and $695 per adult. The household had a cap of $975 in 2015. Last year and this year, the cap was adjusted to over $2,000.
5. Low Service Levels
Tax season is really an exercise of patience. It has been proven that during tax season, service levels are really low. Customer Account Services phone numbers will be hard to get through. In fact, Forbes put it into numbers: over 83 million taxpayers tried to call customer service but only about 10 percent were able to talk to a representative. Even then, the waiting period was more than 20 minutes. According to the IRS, improvements are in place. But they are doing it with baby steps. The goal, for now, is to keep the waiting period at less than 20 minutes.
6. Fewer Tax Audits
Remember how President Donald Trump is always claiming that his tax records are being audited? Well, there will be fewer of those this year. But once you have become a target, then prepare yourself. Iit will be gruelling. So if you think that there is a big chance of an audit, you should prepare your records earlier.
Here are the chances of being audited: if you earn between $200,000 and $1 million a year, there is a 2.2 percent chance that you will be audited. If you earn $1 million or more, the chance increases to 7.5 percent. There are also reports that the IRS just wants to focus now on the “super wealthy” or those earning millions. The chance of audit increases further if you earn a lot and live abroad.
7. Check ITIN Expiration
If you are using an Individual Taxpayer Identification Number (ITIN) and you have not used it in the last three years, chances are your ITIN has already expired. This means you have to renew it before you start on your tax returns. The sooner you renew your ITIN, the sooner you can start processing the refund. Renewal can take at least seven weeks. But during tax season, you might have to wait for 11 weeks.
You don’t need to spend a long time getting to know the process and the nitty-gritty of the tax returns. But you should at least know the basics to prevent penalties. If we expect services from the government, paved roads, automated government processes, among others, then we should be expected to do our duty as citizen: pay taxes. After all, nothing in this world is free. However, if you run into IRS tax problems, you will need a tax professional.