When Do You Need to File Taxes?
Filing taxes is a crucial responsibility of every American citizen and resident alien. It is essential not only to comply with the federal and state laws but also to avoid penalties and legal issues. In this article, we’ll explore the different elements of tax filing and understand when you need to file taxes.
The Basics of Tax Filing: Understanding Key Dates and Deadlines
If you’re an individual, the deadline for filing your tax returns is April 15th every year. Typically, the Internal Revenue Service (IRS) begins accepting tax returns in January and issues refunds within 21 days of accepting the return. However, if April 15th falls on a weekend or holiday, the deadline may be extended to the next business day.
For freelancers and self-employed entrepreneurs, they need to file their tax returns on the same date, but they are also required to pay certain taxes on a quarterly basis. It is because they are responsible for paying their Medicare, Social Security, and other taxes on their own, whereas an employer usually takes care of these taxes for their employees.
If you’re a business owner, the tax filing procedure can be even more complicated depending on the form of your business. Corporations, for instance, must generally file their taxes by March 15th, while partnerships have until March 15th to provide K-1 forms to their partners and until April 15th to file their tax returns.
It’s crucial to file your taxes on time because delay in tax filing can lead to hefty penalties, fines, and even legal action. Therefore, it’s better to start collecting your tax documents and prepare your tax return as soon as possible.
What Happens If You Miss the Tax Filing Deadline?
As we mentioned earlier, the deadline for filing taxes is April 15th, extending to the next business day if it falls on a holiday or a weekend. If you miss this deadline, you may have to face various penalties and fines. To avoid such penalties, you may request an extension by submitting Form 4868 to get a six-month extension for filing your tax returns.
Some of the consequences of failing to file taxes on time include; a late-filing penalty rate of 5% of the amount you owe per month up to 25%, a late-payment penalty rate of 0.5% of the total tax due per month, and interest on the amount of tax you owe.
However, to avoid late filing penalties, you need to prove that you have a valid reason for missing the deadline. Such valid reasons include natural disasters, military duty, and serious illness. Alternatively, you can also communicate with the IRS or seek the services of a tax relief professional.
Who Needs to File a Tax Return? A Guide to Tax Requirements
Not everyone is required to file a tax return as the IRS has different income thresholds for each filing status. For instance, a single individual with an income less than $12,200 is not obligated to file a tax return. However, if their income is more than that amount, they must file a tax return. Additionally, other individuals need to file a tax return regardless of their income, such as self-employed individuals and senior citizens.
The type of tax form required for tax filing generally depends on your filing status, namely; Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widower. For example, if you’re Single and earned less than $69,000 in 2019, you can file your tax return electronically for free using the IRS’s Free File Program.
The Pros and Cons of Filing Taxes Early or at the Last Minute
There’s always a debate about whether you should file your tax returns early or wait till the last minute. Filing taxes early comes with various benefits, such as getting your refund quicker and being able to avoid the last-minute rush to collect your tax documents. Additionally, this will enable you to reduce your dependent’s risk of identity theft.
On the other hand, the disadvantage of filing early is that you may miss important forms like W2, 1099, or K1 because employers and financial institutions usually provide these forms to taxpayers in February.
Filing taxes at the last minute also has its benefits. For instance, if you need more time to collect your tax-related documents, you can file for an extension. Additionally, by filing at the last minute, you’ll have more time to save money in case you owe the IRS.
However, as expected, the downside of filing taxes at the last minute is the stress, potential errors, and pass-through entity taxation complexity. Moreover, if you owe the IRS money, you may face a penalty because of the late payment.
Top Reasons to File Your Taxes Even If You Don’t Have To
Sometimes, people who are not required to file taxes still choose to do so. This is because voluntary filing can benefit you in several ways, such as eligibility for certain tax credits like the Earned Income Tax Credit and the Child Tax Credit. Additionally, if you didn’t file taxes in the previous years and owe taxes, the IRS will waive the penalty for the late declaration of taxes if you voluntarily file.
Navigating Tax Filing Requirements for Self-Employed Individuals and Freelancers
Being a self-employed individual or a freelancer can make tax filing more complicated. One of the primary reasons for this is the need to pay self-employment taxes, which are Medicare and Social Security taxes, in addition to the income tax. Freelancers and self-employed individuals need to estimate their income taxes, which are expected to be paid quarterly. The failure to estimate and timely pay these taxes can lead to penalty and interest.
Freelancers and self-employed individuals have different tax deductions and credits than regular employees. For instance, they can claim deductions for expenses related to their work, like workspace, equipment, and other materials. Additionally, they are eligible for self-employment tax credit and health insurance deductions.
Commonly Overlooked Deductions and Credits to Save Money on Tax Filings
One of the biggest mistakes taxpayers make when filing their taxes is overlooking deductions and credits that can save them hundreds or thousands of dollars. Some eligible deductions include charitable donations, contributions to an IRA or HSA account, and medical expenses exceeding 7.5% of the income. On the other hand, eligible credits include education credits, child and dependent care credit, and the retirement savings contribution credit.
Conclusion
Filing taxes is an essential responsibility that requires careful consideration and planning. Based on your status (individual, freelancer, or business owner), you need to pay attention to different deadlines, filing requirements, and applicable deductions and credits that can save you money. Ignoring taxes or filing them late can lead to penalties, fines, and legal issues. Therefore, it’s vital to prioritize tax filing and seek professional help if necessary to avoid any mistakes or errors.
