You’ve probably heard the saying that death and taxes are facts of life. But in spite of the fact that everyone has to pay taxes, many of us put off filing taxes until the April 15 deadline is practically upon us. Unfortunately, this procrastination can result in a number of negative consequences. Not only can the IRS tack on steep penalties if you file late, but rushing to complete your taxes at the last minute may increase your odds of making a mistake that can cost you cash. In the end, your reluctance to part with your annual earnings may lead you to owe more money down the line.
Luckily, there’s still time to complete an accurate federal tax form before the deadline. There are even some steps you can take to reduce the stress that goes along with tax season and facilitate the entire process.
1. File Electronically
Want to take a lot of the hassle out of tax season? Submitting your return electronically offers a number of benefits over traditional tax-filing methods, not the least of which is expedited service. Because you’re emailing your return instead of sending it by snail mail, you can rest assured knowing it won’t arrive after the April 15 deadline. As an added bonus, submitting your return sooner means you can also expect to receive any refunds more quickly.
Additionally, filing electronically is a great way to increase tax-return accuracy and to cut down on potential penalties. While navigating the tax maze alone can be intimidating, e-filing lets you take advantage of tax-preparation software like TurboTax, which can help expedite and facilitate the entire process. Because these programs perform all the necessary calculations, you don’t have to worry about making costly math errors. And if the IRS does have questions about your return after you file, it can simply access your permanent electronic record. Moreover, many programs alert you to potential tax breaks and deductions, so you can feel confident that you aren’t paying more than your fair share.
2. Take Advantage of Tax Breaks
Speaking of tax breaks, individuals who procrastinate on their tax returns often miss out on potentially lucrative deductions. Instead of waiting until April 14 to file, start compiling a list of all the tax breaks and deductions for which you may qualify as soon as possible.
For example, while parents likely know they can cut their federal income tax burden by $1,000 for every child under 17, they may not be aware that higher education is also tax-deductible up to $4,000. Additionally, adults can deduct up to $2,500 in interest paid on student loans.
Of course, individuals aren’t the only ones who can take advantage of tax breaks. Small business owners should also do their research regarding potential deductions. Generally, SMBs can deduct expenses that are considered either ordinary (i.e. common in their fields) or necessary (i.e. helpful in doing business). If you operate your small business out of the home, you may also be able to deduct a percentage of expenses associated with rent and utilities.
Think your business had to be operational in the last calendar year in order to take advantage of tax breaks? On the contrary, startups incur a number of deductible capital expenses before they are technically open for business. According to the Small Business Administration website, deductible startup expenses may include market research, employee training, advertising and incorporation fees.
3. Check Your Work
In your rush to complete your taxes on time, it’s easy to make an error on your return. And while math mistakes may not seem like a big deal, even the smallest blunder can end up costing you big money in fees and penalties.
Although tax software is great for checking your math, you should also read over your form to ensure all numbers were entered correctly. If you’re filing by mail, you should also check that you included all the necessary forms and signed each one in the appropriate spot. Finally, take a moment to check that you entered your Social Security and bank account information correctly. The last thing you want is for your much-anticipated refund to be delayed because of a misplaced digit.
Of course, tax filing can be even more complicated for independent contractors and small business owners. As a freelancer, it’s a good idea to review your records from the year before to ensure you have the proper Forms 1099 from each client with whom you contracted. Take care to report income accurately, as clients will also be sending in their figures, and any discrepancies are likely to raise red flags for the IRS.
4. Request an Extension
Most of us have the best intentions when it comes to filing our taxes on time. But if it’s April 14, and you still have questions, it’s better to request an extension from the IRS than submit a substandard return because you ran out of time. By submitting a Form 4868, or Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, taxpayers can automatically extend their filing deadline by six months. As an added benefit, you can file this form online up until midnight on April 15.
5. Make an Estimated Payment
It’s important to note that Form 4868 grants an extension only for filing taxes, not for making estimated payments. If you believe you will owe money on your tax return, it’s important to make an estimated payment by the 15th of April. Failure to pay at least 90% of your tax burden on time may result in you being subject to steep penalties. In fact, the IRS can charge an additional 5% of the quantity you owe each month, up to 25% in penalty costs. You can include your estimated tax liability in the payment section of your Form 4868.
With so many competing demands for their time, small business owners often procrastinate come tax season. However, waiting until the last minute to file your tax return could end up costing you more money in tax penalties and may even result in an audit. Avoid carless and expensive errors by getting your taxes done early this year and having a professional address any concerns you may have. Perform your due diligence to protect both your business and personal finances moving forward.