Struggling to Understand Your Taxes? Start Here

Trying to understand taxes is like trying to learn a foreign language. We may have a little understanding, but for the most part, we have no clue what’s going on. If you’re like most Americans who don’t fully know how taxes even work, you’re not alone. To help you navigate through tax season and please Uncle Sam, refer to our Understanding Taxes Guide below.

When is the tax filing deadline?

First and foremost, it’s important to know when the last day to file your taxes is. Each year, Tax Day in the United States falls on April 15th, unless the 15th happens to be a weekend or a holiday. In that case, Tax Day will fall on the following business day. It’s important to mark your calendar because if you fail to file or pay your taxes, you can face hefty fines and penalties. These include:

  • Failure to File Penalty: If you fail to file your taxes, you can face a fee that 5 percent of your unpaid taxes, up to 25 percent. After 60 days, you’ll either have to pay $135 or 100 percent of the taxes you owe, whichever is less.
  • Failure to Pay Penalty: If you fail to pay your taxes, you will face a charge of 0.5 percent of your unpaid taxes for each month late, up to 25 percent.
  • Failure to File and Pay Penalty: If you fail to file and pay, your failure to file penalty will be reduced by your failure to pay penalty. Even if you don’t have the money to pay for your taxes by the deadline, it’s important to at least file. This way, you won’t face extra fees, penalties, and interest and will be able to avoid a tax blunder.

How do I pay for my taxes?

Some people may owe taxes to Uncle Sam for a variety of reasons. Some reasons include having too little withheld from their pay, having extra income not subject to withholding (such as money from stocks), and self-employment tax.

If you end up owing a large chunk of change on April 15th, you can always sign up for an IRS payment plan that reduces the threat of increased collection actions. Or, you can apply for a tax extension that will give you 6 more months, until October 15th, to file your taxes.

What documents do I need when filing my taxes?

Another area of taxes many Americans struggle with is collecting all the proper documents that are needed to file taxes. It’s important to keep your finances fresh throughout the year and organize all of your documents, so you don’t end up tearing your house apart looking for your W4 Form or receipts you need for proof for a deduction. Below is a list of all the important paperwork you should have prepared well before Tax Day:

Income Information

○     1099-Misc: Used for self-employment

○     1099-DIV: Used if you received dividends

○     1099-G: Used if you received benefits or money from the government

○     1099-K: Used for transactions made through third-party transactions, like Venmo and PayPal

○     1099-R: Used for distributions from a retirement plan, IRA, pension, etc.

Personal Information

  • Social Security Card or tax ID number
  • Date of birth for you and everyone on your return, including spouses, children, and dependents

Self-Employment Information

  • Mileage records
  • Home office expenses
  • Records for business expenses
  • Receipts for quarterly estimated tax payments

Medical Information

  • Unreimbursed medical expense receipts
  • Health insurance coverage forms filed on Form 1095
  • Social Security Benefits

Life Information

  • Property tax receipts
  • Home improvement invoices or receipts
  • Annual mortgage statement
  • Childcare receipts
  • Contributions to college savings plans
  • Charitable donation receipts
  • Documents related to marriage, divorce, death of a spouse, adoption papers, child custody documents, etc.

As you can tell, being a taxpayer means you’re responsible for keeping track of a lot of documents. The best way to stay organized throughout the year is to make copies of important documents and file them. Or, you can scan and upload them to cloud-based software that will securely store and encrypt your personal documents. It’s always important to ensure you have all the necessary documents to prove your income and deductions so you don’t end up in a tax fraud case, causing you more money and stress.

How do I file my taxes?

Once you have all of your documents needed for proof of income, deductibles, and so forth, it’s time to begin filing. There are three ways you can file:

  1. By yourself: You can file your taxes by completing all necessary forms and mailing them to the IRS or using Free File on their website.
  1. With an accountant: If you want to ensure you file properly, you can consult with an accountant who can do your taxes for you.
  1. Online tax services: Online tax services blend the best of both worlds, allowing you to file your taxes by yourself with the help of tax software that will ensure you have all necessary documents.

Wrapping Up

We get it, trying to understand taxes isn’t easy. However, using this guide during tax season will help you ensure you have all the necessary paperwork to please Uncle Sam. By planning for the future and staying organized throughout the year, you’ll get through tax season with ease.