Tax filing is the process of creating and sending a document to the tax authority that reports income, expenses and other pertinent details. It enables taxpayers to calculate their owed amount, make payments on time or request refunds for overpaid taxes.
The 2023 tax filing season officially commences on January 23. To avoid penalties and interest, file your return on time or request an extension.
Taxes
Taxes are an effective tool for governments to generate revenue to fund essential government services like highways, police and a justice system. Furthermore, taxes assist businesses by financing investments in infrastructure essential for success.
The federal income tax system is progressive, meaning your rate increases as your earnings do. There are various brackets and a schedule of rates to ensure fairness.
Some taxes are collected at the point of sale, such as sales taxes; others require recurring obligations like property tax payments. Others are more specialized such as value-added taxes or customs and import duties. The best way to understand the tax system is consulting an expert. They can identify which type of tax applies best for your situation and help avoid a large bill come tax season. Taking action now could save you stress later and even money!
Estimated tax payments
If your paychecks don’t have taxes withheld from them, or you receive money from a side job, small business, or other sources that aren’t subject to federal tax withholding, then you must make estimated tax payments throughout the year. Making these payments helps cover any taxes owed during that period and gives you peace of mind when filing your taxes in April.
Many people believe that paying estimates is the best way to avoid an underpayment penalty when filing their taxes. Unfortunately, calculating how much you owe and making sure to pay it off promptly can be a challenging task.
To determine your estimated taxes due, utilize Form 1040-ES and pay by April 15th, June 15th, September 15th or January 15th. The IRS requires a voucher with each payment but electronic payments can also be made online.
Extensions
If you’re having difficulty meeting your filing deadlines, the IRS offers extensions. Filing extensions are commonly requested when someone experiences a major life event that could prevent them from preparing and filing their return, such as losing a loved one, divorce or moving.
If you need additional time to finish your return, you can request an extension by filling out IRS tax form 4868 for individuals and IRS Form 7004 for businesses.
You have the option to file your extension electronically if desired. When filing electronically, you should receive a confirmation code confirming that the IRS received your request.
Unfortunately, the extension doesn’t grant you any extra time to pay your taxes; thus, you must estimate how much owed and pay it by April 18. Missing that deadline could mean paying late fees and penalties on any unpaid amount as well.
Payment options
When filing your taxes, there are various payment options available to you. These range from electronic methods like EFTPS (Electronic Federal Tax Payment System), card payments or digital wallets to the traditional paper check method.
One popular option is direct pay, which offers a fast and effortless way to make payments directly from your checking or savings account. This service is free, plus it provides instant confirmation.
Another popular option is e-pay, which is only accessible to taxpayers who e-file their return using tax preparation software or an IRS-approved e-file provider (like a tax professional). This involves entering your banking information and selecting a date for direct debit withdrawal from your bank account.
Finally, you can set up an installment agreement with the IRS that allows you to make smaller monthly payments and pay off your balance over time. This option is often chosen by those who owe back taxes or don’t have adequate financial resources. There is usually a user fee for entering into such an installment agreement but it’s usually lower for low-income taxpayers.
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