At the end of the year, there is a lot going on. There are several important holidays during the winter, and many people find themselves spending a lot of money by buying gifts for friends and family, splurging on treats for themselves, and paying for holiday travel.
You might not think about December as tax time, but it might be a good time to start gathering all your items together. Although you cannot officially file your taxes for the year until early January, there are some benefits to getting it ready to go this time of the year. This is also the perfect time to finally deal with your back taxes and tax debt.
Why You Can’t File Your Taxes
The IRS does not accept annual income taxes from individuals until the early weeks of January. For example, in 2016 the IRS started accepting returns for the 2015 tax year on January 19. Even if you mail your taxes in early, the IRS holds them and does not process them until that date.
It is also important not to file too early, since you need to have all of your income information for the entire year before you finalize your return. Even if you have a steady income, there is still a chance that you might find yourself with some alteration in your income. This would require you to have to make alterations to your return or face penalties.
That being said, there is still a lot of reasons why the end of the year is the best time to deal with your taxes.
Preparing Your Tax Return
When you pull out your finances to work on your budgets for the holiday spending, start thinking about taxes as well. Since you are already looking at your financial documents, it is the perfect time to gather together all of your documentation for your completing your tax returns. You can even start filling out the return and get it mostly finished. Then, put it in an area where you will not forget about it. When January rolls around, all you have to do is double check the information remains valid. Then, you submit your return and wait for your refund to roll around.
Since you filed early, you will get your refund earlier. You can use it to pay down the debt you acquired over the holidays, or you can treat yourself to something new during the sales that often occur in January or February. Or you can simply save the refund.
It is beneficial to file as early as possible if you owe taxes as well. For one, you pay it right away and are compliant for the year. You do not have to worry about dealing with any penalty fees for late filing or late payment. You also have four months to get together the funding if you are surprised by the amount you owe and do not have the finances readily available. This ensures you can still pay your entire tax bill before the April 15 deadline.
As an added bonus, during late December and early January, you might find it easier to secure appointments with tax preparers because you are ahead of the crowd. You might even get a discount rate. However, they will not file anything until January, even if you visit in December. You might also need a second visit to ensure everything is correct before the final filing, so be sure to include that in your budgeting.
You can even make this an annual event so that you associate preparing your taxes with the winter holidays. Then, you will never again forget to get your taxes prepared and ready to file when tax day comes around. You will be in a much better position than those who are stressing out in April trying to get everything together.
Handling Back Taxes in December
Although there is only so much you can do towards paying your current taxes this time of year, December is the perfect time to handle any tax debt or back taxes you might have. Although you might feel that you have many other financial priorities during these months, especially if you need to do a lot of holiday shopping, you might find that it is better to go ahead and deal with your IRS debt. You will end up saving money in the long run, and you will start the new year with a fresh perspective and less stress.
If you do not file your return on April 15, or file an extension and then submit it on October 15, then you face a failure-to-file penalty that is pretty steep. It starts the day after your return is due. It is generally a whopping 5 percent of the unpaid taxes for each month or part of a month that you have not filed. This maxes out at 25 percent of your total tax bill. Filing in December greatly reduces these penalty fees, especially if you were supposed to file in October.
Do the math: October to December is just two months, so you only pay 10 percent in penalty fees rather than 25 percent. This can make a huge difference in your federal tax debt. In fact, just filing at this point will help to reduce your overall debt, no matter when you owed the taxes, whether this year or a previous year.
To further help, pay as much of the tax bill as possible in the moment. You will face a failure to pay penalty as well, which is 0.5 percent of the unpaid taxes. It can also max out at 25 percent of your tax. If you have not filed and not paid, then the two penalty fees combine to the 5 percent penalty charge. Paying at least some of your taxes will help to reduce your penalty fees and the interest owed on it. The faster you deal with it, the less you will end up owing in the long run.
If you cannot pay off your taxes, it is still beneficial to take care of it during this time of year, whether it is tax debt from 5 years ago or just this past year. If you are still within the three-year deadline, you can file your tax return and might find you get a refund. If you owe money, you have choices. Applying for one of the tax relief programs, such as an Installment Agreement, Penalty Abatement, or an Offer in Compromise, will stop any collective action and help you to get a fresh start come the new year. Talk with a tax professional, like the experts at Fidelity Tax Relief, to find out the best avenue to help you clear out your tax debt this winter and start the new year fresh. Call us today at 877-372-2520.