The Procrastinator's Guide to Tax Season
Each year, tax season instigates a series of FAQs. If you’re self-employed, you may be wondering what to write off. And should you hire an accountant, or go the digital DIY route? Then there’s a procrastinator’s paradise: the wonderful world of extensions. Well, we asked an expert and are here to offer some friendly pointers to get you off and running. Here’s everything you need to know to be stress free this April.
When to File
You’ve probably heard that you need to file your tax return by April 15. Not this year! April 15 is Emancipation Day, a holiday for the IRSs, so this year’s due date for individual federal income tax returns is Monday, April 18, 2016. Not enough time to prepare your return? No problem—file an extension.
Filing for an Extension
You can extend the due date of your federal income tax return to October 15, 2016, if you can file a Form 4868 by April 18, 2016. To do so, first estimate your tax responsibility. Second, add up all of your federal income tax payments, including any overpayment from 2014, along with the federal income tax withholding from all of your W-2s. Enter these two amounts on your Form 4868. If you have a refund, then you don't need to pay anything. If you owe additional tax, you need to decide whether to pay it now or wait until you file the return. Once you fill out the form, either mail it or e-file it with an IRS-approved software provider.
Live in California? If you file the federal income tax extension Form 4868 by April 18, 2016, you do not need to file a California state extension form; your state filing deadline will be automatically extended. You can, however, still file a state form now to pay tax dues.
FYI: Although you do not have to pay any additional taxes to receive an extension, if you wait until you file the return to pay the tax, then you may owe a penalty in addition to interest on any owed tax.
The Skinny on E-Filing
Don’t want to buy software? E-filing may be for you. If you have adjusted gross income of $62,000 or less, you can e-file your return and your extension free of charge using one of 13 available vendors listed on the IRS.gov Free File website.
E-Filing Your State Taxes
All of the 13 aforementioned vendors have a state tax software system. One of them, On Line Tax, also allows you to file the state tax return for free. Make more that $62,000 in 2015? On Line Tax charges $7.95 for federal and $7.95 for state. If you made more than $62,000 last year, check out the other 12 vendors—prices vary.
If you want to contribute to an Individual Retirement Account (IRA)—either Roth or traditional—or a Health Savings Account (HSA), you need to do so by April 18, 2016, even if you file an extension of your federal income tax return.
What to Write Off
From work travel per diems to office supplies and client dinners, be thorough with your list of write-offs. If you’re self-employed, we’ve assembled a checklist of expenditures for your consideration. Make a list and check it twice. Your refund depends on it.
DIY vs. CPA
If you decide to file your return by April 18, you have two choices: Either prepare the return using IRS-approved software, or hire a professional. Business owners, the self-employed, and others with complicated tax returns should strongly consider hiring a knowledgeable tax professional, either a certified public accountant or tax preparation firm. For simple tax returns, however, there’s really no need to hire someone; you can buy IRS-approved tax software or simply log into a vendor's website and file from there, sometimes for free. These user-friendly options ask a series of easy-to-understand questions, and some software vendors even offer free tax advice if you use their online service. Plus, if you start your own filing and later decide it’s not the right fit, you can always fall back on a professional.
Shop personal finance reads below.