Here we are, at the deadline for individual taxpayers…and your stress level is high (extremely) because you procrastinated. What can you do?
It is the NIGHT BEFORE and you are unorganized, yikes!
You need to extend the deadline for filing form 1040 (see link for instructions) which means your return is not due for 6 months (October) but payments must be made by 4/18/16. You can make a payment without providing a return but you can not provide a return without paying. Not paying might result in penalties which are pricey. Use form 4868 to extend your deadline.
How much do you pay? If you are an employee and completed a W-4 when you were hired, you are probably okay, however, other forms of income could result in additional taxes due. Do what you can and call a tax accountant ASAP. Every day you do not pay counts…it adds up.
Filed an extension, I can relax, right?
Yes, but not too much. I assume this is a matter of procrastination so do not put yourself in the same situation again. Start right away, in this order:
Find documents related to INCOME –
Find all papers associated with INCOME earned: If you earned the income from a company, they are required to provide Form 1099 or W-2 (must have been post marked 1/31/16). If you are an independent contractor, you will receive a 1099 stating how much you earned; if you are an employee, you will receive a W-2 (generally, you can get the same information from your last paycheck or the one closest to 12/31/15). One exception, 1099’s are only required if you earned $600 or less. FYI, your employer will send their copy to the IRS so there is no getting around this. If you lose it, call your employer and request another copy.
Find remaining documents: Many sources of income are reported on form 1099 followed by the type: taxable interest earned on investment accounts is reported on “1099int”, dividends on “1099div”, retirement distribution “1099-R”, and many others, the catch all is “1099MISC”. They come in the mail or e-mail starting early February through March.
There are other forms with odd names such as, your share in a partnership is reported on a K-1. Be aware, if you earned money from something, there is a good chance a form has been issued to you.
Self-employment INCOME This calculation is left to you (or your accountant). Accuracy is important. Do not commit fraud by hiding income (if your clients paid with cash, include it). If you get caught, it will be ugly. Worst case, go through your bank statements and add up the deposits that represent income (please tell me you deposited client payments and/or have a merchant account, if not, find anything…any support that documents income).
Find documents related to DEDUCTIONS –
Some deductions will be mailed to you by the company you pay. For example, mortgage interest paid is reported on form 1098. All forms should be received in the first few months of the year.
Finding deductions are harder because you have to calculate them yourself. The first problem – learning what are allowable deductions. If you are not comfortable figuring this out on your own (there are an endless books, blogs, articles, etc) then hire a tax accountant, at least for one year. Take time to understand your return. Maybe you can do 2016 which might save hundreds in accounting fees. I have yet to see a tax accountant charge less than $250/return, even for easy returns. I do mine with Turbo Tax, but be cautioned, my return is easy because it has been the same for many years and my finances (and thinking) are organized.
What happens when you miss a deduction –you are paying more taxes than you need to. A perfect reason to hire a tax accountant rather than miss deductions. Self-employed individuals will benefit the most. If a missed deduction is significant, amend your return… a good reason to hire an accountant.
What else –
The complexity and quantity of tax laws will make your head spin. Fortunately, a lot of them do not apply to the average individual. If you are unsure, go to a tax expert. Get your stuff pulled together, at least semi-organized, so they can understand. FYI – for my clients, I prepare the information that is sent to their tax accountant. My fee is much less than most tax accountants. Believe me, disorganization will result in higher tax preparation fees.
General rules – if you are going to be audited, the IRS has 3 years to let you know. However, the rule is for individuals to keep their returns and support for 7 years. Because I am a nerd, I have every return I ever filed (but not the support)…this is not necessary unless you like to reminisce, like me.
I like this post regarding organization for tax time official source. This post is for the reformed procrastinator: