Tag Archives: tax

3.31blog

Tips for the Tax Filing Procrastinator

Here’s some good news for all you tax filing procrastinators out there: Tax Day has been pushed back three days this year.

No joke—because Emancipation Day is being observed on Friday, April 15 this year, Tax Day has been moved to the following Monday, April 18.

So what will you do with these three extra days? That depends on your level of procrastination, of course. Here are the three most important things to consider if you’re filing your taxes at the eleventh hour:

  1. Do you owe money to the IRS or does the IRS owe you a refund?

If you don’t owe any money to the state or Federal government, then the April 18 deadline doesn’t apply to you. Yes, you heard that right. You will not incur a late filing penalty on your taxes if you’re owed a refund, so take a deep breath and stop stressing out. BUT (and this is important for people prone to procrastination) the longer you wait to file your taxes, the longer it will take to receive your refund. On top of that, you run the risk of becoming a victim of tax fraud the longer you wait to file, which is why we suggest filing as soon as you can. (If you file your taxes early, a fraudster can’t do it before you.)

  1. File an extension / Ask for payment installment plan

If you do owe the IRS money, you will incur late filing penalties on that amount unless you file for an extension. Even if you file for an extension, you will incur late payment penalties unless you pay at least 90 percent of your tax liability by April 18. Luckily, the process is fairly easy—fill out Form 4868 online or by mail and your new deadline will automatically be extended to October 17. Also, if you file on time but don’t think you’ll be able to pay the owed balance by the original deadline, you can request a short-term extension to pay the balance due or request an installment payment plan. This process requires a request be made by the deadline (check to see if your state requires a separate extension), but will give you time to get your finances in order.

  1. Don’t rush

The worst thing to do is try to beat the deadline without filing for an extension. Chances are you’ll overlook critical deductions and credits that may lower the amount you owe or increase your refund. There are a slew of life events that can affect your tax situation (e.g., marriage, divorce, starting a business, having a baby, etc.) and it would be a shame to ignore them, especially when it means more money coming out of your pocket.

For more info on how to avoid penalties that come along with missed tax deadlines, visit our Block Talk blog. In order to prevent winning the two-time tax procrastinator award, check out this handy infographic to find out what forms you’ll need, along with a tax prep checklist for next year’s prompt filing.

paycheck

Breaking Down A Paycheck: Teaching Your Teen About Tax Withholding

Most teens will be earning an hourly wage at their first summer job, and they might expect that by multiplying the number of hours they work by their wage, they’re calculating the total amount that will show up on their check.

But they may be in for a not-so-sweet surprise when they open up their first paycheck to discover that a chunk of that total is missing. That’s why it’s important for teens to understand what tax withholding is, what they qualify for and where those deductions are documented before they get their first paycheck.

So, What Is Tax Withholding?

Tax withholding is that chunk of money taken out of each and every paycheck. Teens should understand where that money goes and what it’s being used for. The tax deductibles can be broken down into four parts:

  • Social Security: money that goes toward Social Security benefits in retirement.
  • Medicare: an insurance plan that provides medical benefits to Americans over the age of 65 and individuals with certain disabilities.
  • Federal Income Tax: a designated percentage of income given to the federal government.
  • State Income Tax: for states that collect state taxes, it’s a designated percentage of income given to your local government. (This percentage varies from state to state.)

What Do Teens Have to Pay?

Two payments every teen is required to make no matter the size of income are Social Security and Medicare. These will always be taken out of their paychecks. Things get a little trickier when it comes to determining whether your teen will owe federal or state taxes.

Teens earning less than $6,300 over the course of the year may claim an exemption from income tax withholding by giving the employer a new Form W-4, and won’t have to pay those taxes. However, if your teen has unearned income (interest or dividend income, for example) that threshold is much lower. Also, if income taxes have been withheld from a teen’s paycheck, that teen will need to file a tax return to get a refund. Sitting down with your teen and calculating their projected annual income will allow you both to learn whether federal taxes must also be taken into account.

Unlike federal taxes, state taxes can vary depending upon where you live. Each state can create its own tax law and have its own requirements. Check your local laws with your teen and again see if they are likely to owe state taxes.

Where Do I Find Tax Withholdings?

Now that your teens understand what tax withholdings are and if they are likely to owe taxes, they need to know where tax withholdings are documented and where they can keep track of them. This can be found on their paycheck.

These days, most companies use direct deposit so the earned income is sent directly to bank accounts, as opposed to a physical paycheck that must then be deposited at a bank. Teens must find out which form of payment their company will be using and plan accordingly. Employees using direct deposit will still have access to a paystub, even if they do not receive a paper check.

Regardless of whether they receive a paycheck or paystub, the document will contain:

  • Gross income: the amount of money earned before tax deductions.
  • Tax deduction columns: lists of the amount being deducted for each section: Social Security (often listed as OASDI, which stands for Old-Age, Survivors and Disability Insurance), Medicare, federal and/or state taxes. This is where teens should look closely and make sure only the taxes they have to pay have been taken out and nothing more.
  • Net income: the amount your teen is actually taking home in their paycheck—gross income minus withholdings.

Understanding these concepts and knowing how to read a paycheck will help your teen understand their financial standings and catch any mistakes that could cause them to lose out on potential income.