Everyone hates taxes, aside from the government, but no matter how hard you try, you can’t avoid them. Instead of fighting the inevitable, you can learn about taxes, why you’re taxed, when, and how to pay your taxes.
Being familiar with taxes could help reduce your tax burden as you’ll have a better understanding of credits and deductions. Here are some of the details you need to know:
Do You Need to Pay Taxes?
Not everyone is eligible to pay taxes, therefore, you might want to confirm whether you’re required to pay taxes or not. The IRS typically considers three factors to check if you’re required to pay taxes. These factors include age, income, and filing status. In terms of income, the determining factors are the source, and how much you earned. For example, if your side hustle pays more than $400 per year, you are required to file taxes regardless of your age.
The IRS considers the following as taxable income:
- Wages, tips, salaries, etc.
- Union strike benefits
- Royalties & license payments
- Capital gains
- Severance pay
- Unemployment benefits
- Interests and dividends from investments
- Awards, contest, lottery and gambling winnings
- Rental property income
- Freelance and self-employment earnings
Be sure to visit the IRS page to confirm whether your income is taxable or non-taxable.
How to File Taxes
You can file your taxes via mail, tax preparation software, or a tax professional. The official deadline to pay taxes is April 15 unless the date falls on a holiday or weekend. The first option is free and involves filing a 1040 form, which you then mail to the IRS together with the taxes owed. Another option would be to use tax preparation software, such as TurboTax. The service will come at a charge, but they will help you fill the necessary forms and file your taxes electronically. The last option involves professional help from a tax preparer or accountant.
Due Dates Matter
It’s your duty to file taxes and pay the amount you owe before the deadline lapses. If you decide not to adhere to the deadlines, the IRS will send you a bill and a stern letter. In case the stern letter isn’t enough to scare you, you’ll get a penalty. The more you continue holding out, the larger the penalty becomes. Months later, you’ll have accrued interest plus penalties, and the IRS could choose to claim your assets, property, and even wages through legal means.
File your taxes before the deadline, and if you have trouble filing, be sure to consult a professional. It’s cheaper to use a software or pay a professional, than to accrue interests and penalties from late payment.
Tom serves as the Financial Consultant for Heritage Bank. In partnership with LPL Financial Services, he assists individuals, families and business owners with all aspects of financial planning including retirement.
LPL Financial Consultant • 678-284-3302 • [email protected]