The green surrounding me for St. Patrick’s Day celebrations this week reminds me of the color of money which reminds me that it is tax season which reminds me of the education I received when filing them this year. What is your philosophy for paying taxes? Overpay and get a refund? Under pay and owe at tax time? How do you keep up with all the changes in tax laws? Here are three things you may not know about filing your taxes this year.
Quarterly Not Annually
Do you have as few tax dollars taken out of your paycheck as possible? It’s logical you want to keep as much of the money you earn as allowed. Are you satisfied not receiving a tax refund if it means that you keep your money during the year? Did you know the IRS expects to be paid a certain percentage based on your tax bracket at the time you receive your pay and reconciles quarterly, not annually? If you haven’t had the appropriate amount withheld from your paycheck every quarter, then you are assigned a penalty fee when filing your annual return. Now I know why my gig-working friends fill out Form W-4 every year.
Not a Firm Deadline
Every organization that owes you a tax form is supposed to mail/email it by January 31, right? That means you should be able to safely file your tax return in mid-February. Did you know that if you have certain investments, for example, you are a partner in a business and you report your share of that business’s income on your personal tax return, then you may not receive a K-1 form until mid-March? More on that here.
No Penalty for No Coverage
Did you receive any 1095 forms? They provide information about your health care coverage. Remember back in 2010 when the Affordable Care Act required all Americans to have health insurance or else you paid a fine at tax time? The 1095 forms state how you are covered, for example If you received health care coverage through your employer or the Marketplace. Did you know that there has not been a penalty at the federal level for not having health insurance since January 1, 2019? Yet, these forms keep coming. California, Washington D.C., Massachusetts, New Jersey, Rhode Island, and Vermont require their residents to have health insurance (although, Vermont does not impose a penalty for no coverage). The IRS wants the information, so you keep receiving these forms.
You have several options for filing tax returns. For example, you can purchase DIY software. Here is a comparison of a few. You can hire someone to do them for you. Here is how to look for a good tax preparer. If your annual adjusted income is $73,000 or less, then you are eligible for free guided preparation through this program. Any of these options can provide you with information on annual changes.
What is your philosophy about filing tax returns? Please share in the comments.