Tips

You Owe. Now What?

Tax season is over, but for some that’s the beginning of a new process: that of preparing for payments for tax due to Federal and state agencies. So what now? See below for the next four steps you should take to get a handle on it.

1. FILE ANYWAY.

The IRS imposes penalties for both late filing AND late payment. You can avoid one of these by filing your tax return on time.

2. FIGURE OUT HOW MUCH YOU CAN PAY TODAY

Since penalties on late payments are assessed based on the amount remaining due, you can decrease the amount of interest you'll pay on the unpaid amount by sending something towards your bill. Remember, even if you choose to file an extension, any taxes owed are still due on the filing deadline. Therefore if you don’t pay by the deadline, you are subject to those extra penalties and fees.

3. GET ON A PAYMENT PLAN

If you are not able to pay the amount due in full by the tax deadline, the IRS offers methods by which to pay over a period of time.

• You may qualify for extra time to pay your taxes if you can pay in full in 120 days or less. You can apply online at IRS.gov. There is usually no setup fee for a short-term extension.

• If you owe $50,000 or less and need more time to pay, you can apply for an Online Payment Agreement on IRS.gov. A direct debit payment plan is your best option. This plan is the lower-cost, hassle-free way to pay. The set-up fee is less than other plans. There are no reminders, no missed payments and no checks to write and mail. You can also use Form 9465, Installment Agreement Request, to apply.

4. REASSESS

Now is the perfect time to review your withholdings and estimated tax amounts. Are you on track to be in a similar income situation next year? You may want to update how taxes are withheld from your paycheck, or if you’re self-employed, how much you send to the IRS throughout the year so that you aren’t in for a surprise next April. Take advantage of the IRS paycheck checkup tool to be proactive about your tax planning before it’s time to file.

Tax Season Approaches!

Four Year-End Tax Tips

Tax returns for individuals (and tiny businesses who file a Schedule C) aren’t due until April, but as the end of the year approaches, many are preparing their files and financials so that the tax season can flow a little easier. The upcoming tax season is going to be a bit different for many taxpayers, and whether you plan to enlist the services of an expert or do them yourself, there are a few ways you can start getting ready before the new year begins.

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  1. Get Your Receipts Together

We’ve all seen or heard about the “boxes of receipts” that clients hold onto to support expenses, and even in the age of everything digital, some things don’t change. Many people keep tens or even hundreds of emails or pdfs to accompany their other tax documents, but the reality is, many couldn’t pick out the appropriate one to match an expense if they tried. I recommend choosing a cloud storage option (i.e. Google Drive, Dropbox, etc) and create folders to categorize the receipts by date (month/year) or expense type (i.e. advertising, office supplies, equipment, etc). Generally you want to do this process as you incur the costs, but the end of the year is the perfect time to gather all of your receipts and classify them in a way that allows you actually find them when you need them.

2. Prepare Formal (or Informal) Financial Statements

Do you know how much you earned and spent this year? And on what? Well… you need to. The first step I often give new clients is to track everything. EVERYTHING. Any money that goes in and out of your business should have a category assigned, since this information will ultimately be included on your 1040 Schedule C. If you have an accounting system, congratulations - this step should be pretty straightforward. But if you don’t, start with a basic spreadsheet, pull out your bank statements, and get to categorizing. Not only will this make your net profit clearer to you (which is the number that you will be taxed on for self-employment), this process might also jog your memory for those items that you might have otherwise forgotten.

3. Save All of Your Tax Documents In One Place

Between the W-2 you receive from your job, your student loan docs that you can download online, and the 1099-MISC that comes in the mail, it’s easy to have all of your tax documents available without knowing where they all stand at one time. But in order to have everything you need in time to prepare your tax return, you want to keep all of your docs together, whether hardcopy or in a digital folder. Some of the items you should have at hand are:

  • Prior year tax returns

  • W-2 (if you have an employer) or 1099-MISC (if you freelance)

  • A 1098 from your mortgage company to reflect interest and other mortgage related expenses

  • A 1098-T if you had tuition expenses

  • An interest statement from your student loan company

  • Documentation of charitable deductions

4. Get help if you need it.

As stated before, this year has changes that may provide challenges to even the most dedicated of DIY tax preparers and that might mean you need assistance. Be sure to reach out in advance to properly interview anyone you might want to use for your tax preparation and filing services. If you would like help from Little Fish, please click here to get started. No matter who you choose, make sure to make your selection in enough time to ask all the questions you need to in order to feel comfortable putting your tax needs in someone else’s hands.