As we approach the final few weeks of 2014, all eyes are turning to the New Year. While there is still plenty of time until April rolls around and taxes are due, it’s important to understand key dates and deadlines before they approach. By better preparing yourself in advance, you can ensure full compliance with state and federal laws.
Do You Have to File?
For beginners, or those who have never had the responsibility of filing and paying taxes in the past, it’s important to start by understanding who owes money. With more than 4,000,000 words in the Tax Code and 5,000-plus changes since 2001, it’s difficult to get a grasp on everything. The good news is you don’t need to scour all 4,000,000 words to understand what you owe and when you owe it.
Kelly Phillips Erb of Forbes.com provides a very neat and concise chart to help people understand their filing status based on age and minimum gross income. Essentially, if you are single, under the age of 65, and making more than $9,750, you will need to file a federal income tax return (minimum gross income of $11,200 if you are over the age of 65). For those who are married and filing jointly, the threshold starts at $19,500, married filing separately at $3,800, head of household starts at $12,500, and a qualifying widow or widower starts at $15,700.
2014 Tax Deadlines
Knowing when you have to file and pay can save you much stress at tax time. Mark the following dates in your calendar and don’t let them sneak up on you.
- October 15, 2014. If you requested a 6 month extension on filing your 2013 income tax return or any other payments, hopefully you remembered to follow up by filing by October 15. If not, get it in quickly to avoid additional penalties and action by the IRS.
- December 31, 2014. New Year’s Eve is the last chance to establish a tax deferred pension plan – otherwise known as a Keogh plan – for 2014.
- January 15, 2015. If you pay your own taxes, are self-employed, or have additional fourth quarter income that requires estimated quarterly taxes, January 15 is the date they need to be postmarked by to avoid penalties.
- April 15, 2015. This is the date you cannot miss. Your individual tax returns for 2014 must be e-filed or postmarked by midnight. If you cannot prepare your tax return in time, file for an extension to push the deadline forward six months to October 15, 2015. For self-employed individuals – or those with other first-quarter income that needs to be estimated on a quarterly basis – this is also the date to pay quarterly taxes. April 15 is also the last day to make an IRA contribution for 2014.
- October 15, 2015. For those that received a filing extension on their 2014 tax return, you must have it completed and postmarked by midnight, October 15.
Penalties for Failing to File
The federal government takes tax deadlines and tax payments very seriously. Unless you successfully file for an extension before next April 15, you can face some serious repercussions for failing to file your tax return.
According to Section 6651(a)(1) of the Tax Code, for each month you fail to file your return, you are required to pay a penalty of 5{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} of the net tax liability. While 5{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} may sound light, the costs can add up quickly. A failure to file for eight months could end up costing you an additional 40{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} of your original tax liability.
Penalties for Failing to Pay
Not only must you file on or before April 15, but your tax liability must be satisfied by this date. A failure to pay can enact a second penalty under Section 6651(a)(2) – which calls for a penalty of 0.05{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} for each month the tax is outstanding. The total penalty is capped at 25{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b}. Combine the mistakes of failing to file and failing to pay, and your tax liability can quickly skyrocket.
While there are a few situations in which the IRS is willing to grant forgiveness or show empathy, they are few and far between. Typically, the agency does not care about the circumstances surrounding your debt. Treat these deadlines with the importance they deserve and you’ll be fine.
Hiring a Tax Professional
For assistance meeting deadlines, filing, or paying your taxes, don’t hesitate to seek help from a tax professional. The Tax Code can be very confusing to navigate on your own. Having professional assistance can guarantee you stay within the law.