Stressful Time – Income Tax Time

Tax TimeIt’s often said that the winter holidays are the most stressful time of year, but I bet anyone who has to file an income tax return could easily argue against that contention. With mounting anxiety, Americans often procrastinate for weeks or months before rushing around to collect all the necessary paperwork they need to file. Finally they sit down to face the task – often unaware of which way their return will fall. Will they owe this year or get a tax refund?

 

The economic demands of our day make this season of stress even more challenging for many. With income barely meeting their needs and unexpected expenses straining an already tight budget, many people dread the thought of an additional tax bill. On the flip side is the relief felt when they find that they’ll be getting a refund check in the mail.

 

Knowing that the anxiety-inducing job of filing a tax return is inevitable simply means that postponing the task just adds to the stress. So no matter what you may expect, whether good or bad, the first step in easing the stress is to get down to business. Then, once you know the outcome, you’ll have time to decide how to ease the burden of a tax bill or the best use for a tax refund.

 

You owe the Taxman!

Taking the worst-case scenario first, finding that you owe the IRS. First off, don’t panic even if the amount is beyond your ability to pay within the 10 days allotted after the IRS has made the assessment of what you owe. You need to be proactive in finding a solution while protecting your assets. No one will come to arrest you, but you will begin to get threatening notices before you’ll be contacted by a revenue officer. Quick action will help prevent the harassment and additional penalties and interest.

 

The first question to ask is whether you actually owe the money. A simple mathematical error can mean the difference between a refund and a tax bill. Thoroughly review the forms you filed for discrepancies. Better yet, pay a professional tax preparer to go over your returns again. If you discover that you definitely owe the IRS, you have multiple options to repay. Some will reduce the net amount owed; others will increase your overall payout.

 

An installment plan is the option used by taxpayers who owe less than $25,000. Fill out IRS Form 9465, a straight forward, form used to request a monthly payment plan. Provide the total amount you owe, how much you are able to apply to the tax bill right now and the amount you can pay each month. The IRS then can adjust the agreement or offer other arrangements.

 

Other options for taxpayers who owe money include account receivable and bank levies, wage garnishment, penalty abatement and what’s called an ‘offer in compromise’ which lowers the amount owed. However you decide to address your obligation to the IRS, the sooner you pay it off, the less you’ll pay in interest and penalties.

 

Whoopee! A Refund!

While celebrating may be overkill, taxpayers who are getting a tax refund can breathe a sigh of relief for dodging a tax bill. They now have an opportunity to make wise use of a tax windfall.

 

  • Invest/Save:One of the most fiscally responsible uses would be to deposit it into a 401k or other investment fund that earns interest.
  • Pay off Debt:While increasing your investment accounts has obvious benefits, the decision to pay down debt is a stress reliever for anyone who carries a balance. Lower debt has the potential to move your credit score in a positive direction making future borrowing easier.

 

Experiencing less stress during tax season comes when you pursue excellent financial management all year long. Avoid becoming overwhelmed by consistently burning the midnight oil and sacrificing entire weekends to work. Focus on balancing work and your private life. Set financial goals and celebrate milestones.

 

Tailor your Taxes: Which Service to Use When Filing Taxes in 2015

Tax Preparation ServicesEvery US citizen living and working in the United States or abroad must determine which federal income taxes he or she owes, if applicable. The deadline to pay those taxes for yearly salary earners falls on April 15th of each year; for those who pay quarterly taxes, this date is generally the last day of the second quarter. Despite which category you may find yourself in from year to year, every working person must choose how they file their taxes before the April 15th deadline. There are pros and cons to a variety of filing options which ultimately depend on the type of employment status workers procure.

Once you have determined whether or not you are required to file for federal income tax, you must figure out which filing status you qualify for. Because some filing statuses can be more advantageous for some individuals or families than others, it is important to determine the path that best suits your personal and financial situation. Approaching a certified public accountant (CPA) or tax preparer is a common way to determine your tax situation before April 15th, but a sizable portion of the American workforce continues to prepare and file their federal taxes themselves.


CPA versus Tax Preparers

Even though CPAs and tax preparers may have significant experience in completing and processing tax forms, there are differences between each role. CPAs, for example, are required to undergo state-mandated certification that make them experts in many areas outside of tax preparation such as accounting matters or other financial services. While customers may very well pay more for the services of a CPA than a tax preparer, the additional cost generally covers the expertise needed to analyze and prepare rather complex tax situations. If you find your tax situation is relatively straightforward and simple, choosing a tax preparer might be a more cost efficient method to file your federal income tax. Another advantage of using these services is the protection that comes with your taxes being filed by another business. In the event of a clear error or miscalculation by a CPA or tax preparer office, the IRS will often hold them accountable before penalizing the filing party.

 
Individual Filing

Individual or “self-filing” can be an option for those who wish to save money on hiring a CPA or tax preparer and who might also have due experience with the tax system. Those who understand how to file generally choose this option using free forms and other documents found on the website of the Internal Revenue Service. Online services also allow those to enter in their employment information in a wizard that will generate the necessary tax documentation needed to file both state and federal income taxes. These step-by-step online wizards generally charge between $12 and $25 depending on how complex one’s tax preparation is for the service. While these services may be cost efficient and user-friendly, filers run the risk of incorrectly inputting data or taking advantage of a deduction or strategy that could have been otherwise been advised by a CPA office.

 

The complexity of your employment situation will often dictate which option is best. Those who have changed jobs more than twice in a year or who are independent contractors should probably consult the services of a CPA, while those who have been employed with the same organization for a few years and have a few standard deductions might simply go with a tax preparer or online, self-filing option. Those who are required to file federal income tax should nevertheless conduct their own research well before the tax deadline in order to determine which option is the best for their financial situation.