Monday, April 13, 2015

Filing Your Taxes in the United States

Tax Day 2015 | Filing Your Taxes in the United States


“In this world nothing can be said to be certain, except death and taxes.”
-Benjamin Franklin

He writes…

If you worked in any US State in 2014, you have most likely received your W2 in the mail some time ago.

By now, you’ve probably seen all the commercials, border ads, and maybe emails about Tax Day coming up on April 15th. The day is approaching quickly, and other than Christmas Day for those who are horrible at finding gifts for others, it’s a day that every US taxpayer dreads for various reasons

The process of filing one’s tax return is somewhat of a social equalizer, a responsibility that everyone shares. Unlike in the Philippines, where your employer would file your taxes on your behalf with the Bureau of Internal Revenue, we here in the States must initiate the process ourselves. But it doesn’t have to be overwhelming.

The reasons you need to file your tax return are many, the most important of which is that it is a legal requirement. The Internal Revenue Code enforced by the Internal Revenue Service (IRS) is considered the authority on both the requirement to file taxes as well as the penalties for not doing so, which can include fines and imprisonment, garnishing of wages, and impounds on property, just to name a few examples of how strongly the IRS feels about not filing tax returns.

But the practical reason for filing your taxes is that if you have a tax refund due to you, that means that you had more money deducted from your paychecks than what should have been. The only way to get that money back is to file a return. Now some consider that tax refund money as a little “bonus” one can receive every year to buy that new Mac one has been drooling over for many months, but the truth behind that “bonus” is that it’s not extra money you’re getting from Uncle Sam, but money that was already yours, that you already earned, but that was withheld for tax purposes at the time that you earned it. But I digress since we can explore this viewpoint in another blog entry…

Once you begin planning your efforts towards filing your taxes, you can make the choice to do it yourself or hire a tax professional to do it for you. There are merits behind each, the former of which is of course the cheaper option, especially if your return is straightforward and can be filed on Form 1040-EZ (more on forms ahead…). There are reasons why people can make a career helping others file their taxes, the primary of which is that it’s been said that the written tax code makes War and Peace look like quick reading, and is more complicated than a Chinese textbook on Quantum Mechanics. This blog entry shouldn’t be regarded as giving formal tax advice. However, if you do find yourself in a complex tax situation, consulting a tax professional might be worth it. The cost of professional tax services vary, but can average around $100.

I have filed all of my tax returns myself, and plan on continuing to do so until our financial situation creates the need to hire a professional. For example, a good friend of mine hired a tax professional when he started his own business. Other reasons to consult a professional would be to include what are called “itemized deductions” in your tax return, especially if you spent unexpectedly high amounts on medical expenses or job search efforts. Especially with the latest tax impact, the Affordable Care Act, you definitely should study and become familiar with what are called “shared responsibility payments” if you didn’t have health coverage and don’t qualify for an exemption.

There is no legal requirement to have a tax professional file your tax return for you (another difference from the Philippines?), so if you do decide to file on your own, there are currently many electronic options to use. I’ve filed my returns on paper, and have also used online tax filing services such as Intuit Turbo Tax and H&R Block, which, for individuals like ourselves who don’t have vast knowledge of the tax code, are wonderful tools that help maximize your return by taking the guesswork out of filing.

To file your tax return, at the very least you’ll need your Form W-2 (Wage and Tax Statement) from your employer, and IRS Form 1040, which, like all tax forms, you can download fillable PDFs from the IRS website. Virtually every form also has downloadable instructions accompanying them. The IRS website also has tools to help you determine your filing requirement and any eligible credits you might be able to claim, along with great articles on how to protect yourself and your rights as a taxpayer.

IRS website | Filing Your Taxes in the United States
IRS website
You may have also received other forms in the mail, such as Form 1099-INT (Interest Income). All electronic tax return applications are helpful in navigating where and how to make that form a part of your tax return.

When you’re done creating your tax return and are ready to file it, you may do so electronically if you created it electronically, or you can mail it in. The tax return itself will indicate if you owe additional tax, or if you are owed an amount.

The option to have your refund directly deposited to the bank account of your choice is extremely convenient and quick. But as modern as today’s tax return filing systems are, direct deposit options and electronic filing (“efile”) have been in effect since 1987 and 1990, respectively. The IRS used to mail you a blank tax form and booklet as a convenience for taxpayers; the IRS discontinued this practice completely as late as 2010. (For more efile fun facts, visit http://www.efile.com/efile-electronic-tax-filing-history/).

If you do mail a hardcopy of your return, be absolutely sure to sign and date your return, or else the IRS can reject your return and all your hard work and all the time you could have spent catching up on Game of Thrones would be for naught. Also be sure to use the correct mailing address for the IRS. You have until April 15th to mail your tax return, and as long as your mail is postmarked by April 15th, the IRS will consider your return as on-time. The drive-up and walk-up lines at most Post Offices are sometimes quite a sight as it gets closer to midnight on the 15th.

If you’re one of the unfortunate ones who owe money on your tax return, and you pay with a personal check, be sure that you have enough funds in your account to cover the check. From personal experience, it seems that banks give priority to checks made out to the IRS, regardless of amount.

Tax season doesn’t have to be dreadful if you’re prepared for it, and have all the inputs you need to create a correct tax return. Thankfully, some businesses promote little “Tax Day freebies,” such as free coffee at Starbucks, cupcakes at Cinnabon, and price breaks on online show ticket services like Goldstar.

An interesting observation that I had a few days and shared with my wife is that the more “official” a form looks, the more dreadful it feels to complete and submit it. However, whether the forms are for a process with the USCIS, the NVC, or the IRS, if the designers had esoteric intentions for the forms, they wouldn’t have included such comprehensive instructions to accompany those forms.

The tax return system enables citizens to take control of their finances and tax situations, and there are also safeguards built into the system to ensure accuracy and honesty. Ultimately it is the individual taxpayer who determines how to approach her or his tax return, but as a new immigrant and taxpayer, good civic habits should start as early as possible.#



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