Why 25% of Americans Fall Behind on Their Taxes
Nobody wants to deal with the IRS. However, procrastinating paying your taxes can be very stressful. The IRS estimates that 20 to 25 percent of Americans wait until two weeks before the filing deadline to complete them. These people often run into a number of problems, which can include the following:
- Failure to properly prepare their returns, which can lead to overpayments.
- Making mistakes that can trigger an audit.
- Facing hardship after having to pay significant amounts of money.
- Facing fees for late payments or mistakes.
You should be trying to stay on top of your taxes the entire year to avoid running into these types of problems. This is especially important if you are running your own business, because you are entirely responsible for managing your own taxes.
Tips to Prepare for Your Taxes Year Round
There are a number of things that you can do throughout the year to minimize the stress around tax time. Here are some tips that you will want to follow.
Understand Tax Implications of Investing and Spending Decisions
You want to be fully aware of any tax implications when investing or spending money. Some expenditures can be written off as deductions, such as energy efficient vehicles, donations to recognized charities and some of the money you spend towards a new home.
On the other hand, investing decisions can also affect your tax return. The rules can be very complex if you are getting dividends or incurring capital gains after selling any of your stocks. You need to thoroughly educate yourself on the tax rules beforehand.
Don’t Base Your Estimated Obligations Off the Previous Year
You may have paid $3,000 in taxes the prior year. That doesn’t mean that you should expect to pay $3,000 this year. You may have received a raise from work, which not only increases your taxable income, but could also place you in a higher tax bracket. The tax margins could also have changed.
You need to try your best to come up with an accurate estimate of your income, because you could find yourself owing twice as much as you planned come tax time.
The Affordable Care Act has changed a lot of things. One of the things that they changed is that the IRS now charges a tax penalty to anyone that didn’t have adequate health insurance for at least 10 months of the year. The fine changes every year. For 2016, the tax penalty is either 2.5 percent of household income or $695 per adult and $347.50 per child under 18.
It’s important to make sure that you are covered all year if you don’t want to face this fine. There are several forms of acceptable health insurance:
- A compliant plan through your work.
- A plan on Healthcare.gov or your state health exchange.
Keep in mind that if you get healthcare through the exchanges, then the IRS can provide tax credits to you for your premiums. You have the option to either deduct them from your tax obligations when filing or receive the subsidies throughout the year.
What Are Your Options if You Fall Behind?
According to recent data, about 7 percent of people have to request filing extensions because they procrastinated too long. They may end up paying unnecessary fees or risk getting audited. Fortunately, there are a number of options they can consider. You can work closely with a CPA or tax attorney to help protect you. You can also contact the IRS and advise them of any hardships that are impairing your ability to pay taxes on time.
The IRS also offers some different options for you if fall behind. They will even allow you to pay your taxes using a credit card through their website. This process is much quicker, which is important if you are behind on your taxes. You won’t have to worry about it being postmarked after the deadline and incurring a fee, which is a problem for many people sending checks. It’s also much more convenient, since you can handle everything online.