When you applied for an extension to pay your tax return in the early part of the year, the IRS granted you until October 16 (the usual date is October 15, but for 2017 the date is October 16 due to the 15th falling on a Sunday) to get everything in.
As you turned the calendar from September to October, hopefully, you remembered that it is time to once again get your taxes in order. You do not want to miss your deadline, as this could leave you with extensive debt, thanks to the high late filing penalty fees. Below are some tips for filing to help you through the process.
Give Yourself Time
Technically, you have had six extra months to gather and collect all the necessary paperwork to file your taxes, but it is not uncommon to put it off as long as possible. Plus, some forms take longer to get to you, which is why many businesses and individuals choose to file in October. Be sure to not procrastinate too long, or you will end up increasing your stress and increasing the risk of making a major mistake when you fill out your return. The amount of time you need differs depending on the complexity of your return.
Always err on the side of giving yourself — or your tax preparer — too much time, as this will give you time to search for additional paperwork, ask a tax expert questions or take care of any problems that arise. Thus, if you have not already started, start NOW!
The best way to make your tax preparation go as smoothly as possible is to be organized, whether you prepare your return yourself or you use the services of a tax professional. It is best to develop your organization system early and continue it throughout the year. For example, maintain all receipts and place them into files according to the category, such as job expense or home repair. If you simply throw everything into a drawer or box throughout the year, then your job becomes that much more difficult come tax time.
No matter your organizational work during the year, take some time before sitting down to fill out your return to organize things. This might be going through receipts and previous year returns, or it might simply be finding and collecting the already organized piles you have. Doing this ahead of time will make it much easier and faster to actually prepare your return.
Proof Your Work
Once you have completely filled out your return, including all of the supporting forms, take a moment to double check that you entered everything correctly. If you did the math yourself, calculate it again. Some e-filing platforms do the calculations for you, so you just have to make sure you entered the right number in the correct location. You do not want to end up with an audit or a huge tax bill because you wrote an incorrect number.
Handle Any Back Taxes or Tax Debt
Before you submit your 2016 tax return, look back and make sure you are in compliance with your previous returns with no tax debt. This is especially key if you expect a tax refund. If you have any outstanding tax debt, then the IRS might garnish your return, leaving you with nothing. However, if you clear your tax debt or negotiate a tax relief settlement, then you might be able to retain your refund.
One of the best ways to clear your tax debt is to submit any outstanding returns. If you missed a deadline, then the IRS submitted a return for you. This omits many key credits and deductions, which leaves you owing more money. Through filing a return, you often can diminish — and even remove — that debt. Tax time is the best time to become compliant. You are already working on compiling your receipts and paperwork for this year, making it easier to do so for any previous years.
Don’t Forget to Pay the Rest of Your Tax
For most people, the due date to pay your tax is the normal tax deadline, which is usually on or near April 15. When you filed for an extension, you were supposed to pay an estimated tax. As long as you estimated correctly, or at least 90 percent of what you owe, then you simply need to pay the difference and you will not have to pay any penalties or interest. This payment is due when you file your return, so be sure you are ready for that payment.
If you did not pay your taxes back in April or estimated a number lower than 90 percent of your total tax, you might find you owe even more money thanks to penalty fees and interest. It is best to pay all of it off in one payment to avoid any additional interest or fees. However, pay as much as you can when you file your return, as this will help you in the long run even if you cannot afford the entire bill due.
What to Do If You Cannot Pay
If you find that you cannot pay the taxes that you owe, whether it is the difference in taxes or you never paid in April, you have options. The IRS allows you to set up an Installment Agreement, which is a payment plan, to reduce your immediate tax burden by spreading it out to lower monthly payments. Just be aware that your tax debt continues to accrue interest and penalty fees, although at a smaller rate than if you did not set up the plan. There are also additional tax relief options, such as Penalty Abatement or an Offer in Compromise, for those who qualify.
As October 16, 2017, tax deadline approaches, make sure that you take the time to properly fill out and file your 2016 taxes. This reduces your burden in the future. However, if you find that you struggle to pay your taxes, or if you have an overwhelming debt from your previous tax years, then contact us to speak with our expert tax professionals. They will discuss your situation and determine the right solution for you. The tax professionals at Fidelity Tax Relief work on your behalf to negotiate a federal tax debt settlement with the IRS to get you out of your current debt and back into compliance.