Wednesday, April 15, 2015

Taxes and Taxes

by stevepb on Pixabay
It's Tax Day here in America, meaning the 1040s are flying (mostly electronically) as Americans scramble to file their taxes or to get an extension request in. Several, likely those who are receiving refunds, have filed months ago, but the procrastinators are all on task today.

This year, we ended up paying a little more than we would like, the first time we have had to pay in several years. We've fixed that for next year, but it reminded me of several basic tax facts to remember, so I thought I would share a few:

  • Taxes are fully intended to be zero at the end of the year. If your refund is huge, you are loaning the government money interest-free throughout the year. If you end up owing too much, not only will the government charge you interest or penalties, but they may start making you file quarterly so they can make sure they get their money.
  • Review and refile your W-4 with your employer annually. This is particularly important if you are a double-earning household or if you itemize deductions. In both of these situations, there are additional worksheets to fill out (on the back of the W-4) where the amounts may change based on the current tax law or your prior year returns. If you don't fill this out correctly, you may end up owing quite a bit.
  • File on time. Either file on time, or file an extension, but be aware than an extension will still potentially incur penalties if you don't pay a high percentage of taxes due. Not filing on time will incur a ton of penalties that is simply not worth an additional day of procrastination. At a minimum, file an extension today.
  • Keep an idea of how your deductions work. Several deductions and exemtpions phase out above certain income levels (IRAs, student loan interest, etc.). Be aware of your income level as well as your deductions throughout the year and focus on those that do not phase out.
  • You always make more than they take. However painful and annoying taxes may be, know that they are utilized to take care of government services that you may take advantage of one day (like interstate highways) and that until we reach a level of taxation that exceeds 100%, you're always bringing something home. For the past century or two, the take-home has exceeded the taxes paid pretty consistently.
I am sure you have more tax tips and advice. What are they?