by Ryan Tierney and Katie Glorvigen Tierney
Does tax day bring emotions of excitement or dread?
There may not be another day that brings so many mixed emotions: "Tax Day". Does it bring excitement because you are expecting a refund? Or, does it bring dread because you might owe big, you have yet to go through a year's worth of paperwork, or you are not even sure where to start? Here are answers to many frequently asked questions that we hear in our office as tax day approaches. Our hope is that these answers will ease the tax filing anxiety you may be facing this coming tax season.
Q When is tax day?
For individual taxpayers, tax returns are due April 15th. For business owners, 1099s are due in January. Some businesses, however, may have a different tax deadline depending on the type of return.
Q Will I get penalized for filing an extension?
If you are unable to prepare and file your tax return by the due date, you are eligible for an automatic 6-month extension of time to file. For your individual return, you must file an extension application, Form 4868 by April 15th. This gives you until October 15th to file your return. Keep in mind that this allows for an extension of time to file your return but is not an extension of time to pay. You will not be penalized as long as you do not owe additional tax. If tax is owed, you may be subject to late payment penalties and interest.
Q Where's my refund?
The IRS issues most refunds in less than 21 days for those returns electronically filed with direct deposit. For paper filed returns it could take four weeks or more. The IRS can always hold up a return to allow additional time to look into potential issues.
Q Why don't I get a refund now that I'm self-employed?
With W-2 wage earners, tax refunds are typically a return of tax paid in during the year through tax withholdings. This method of withholding allows for a built-in cushion or "forced savings" that you receive back in the form of a tax refund. Self-employed taxpayers that no longer receive a regular paycheck with taxes automatically withheld by employers will not have any tax paid in throughout the year, unless they have made estimated tax payment. If you are not making estimated tax payments throughout the year, it is unlikely you will receive a refund.
Q If I freelance, how often do I have to do my taxes?
The IRS requires that you pay taxes as your money is earned. By not paying throughout the year, they view it as though you held on to the money interest free. To prevent this, the IRS requires estimated tax payments, due April 15, June 15, September 15, and January 15. You have the option to pay in 100% (or 110% in some cases) of your prior year tax or to pay in 90% of the current year tax. If you are basing your estimated tax payments on the current year, you will need to project your current year income, up to four times throughout the year.
Q I'm an independent contractor. Can I deduct?
As long as the expense is "ordinary and necessary" to your business, then it should be deductible. There are certain exceptions for personal use items like clothing. The more you document your business deductions, the more likely the IRS is to allow your expense. Ask your tax preparer if you have specific questions related to your business.
Q How does having or not having health insurance affect my tax return?
The Affordable Care Act imposes a tax penalty for those individuals not carrying minimal essential coverage. If you did not have coverage for any part of the year, this penalty is calculated on your individual federal income tax return. For 2016, the maximum penalty is the greater of a) 2.5% of household income, with a maximum equal to the total yearly premium for the national average price of a Bronze plan through the Marketplace or b) per person: $695 per adult and $347.50 per child under 18, with a maximum family penalty of $2,085.
For more info
Ryan Tierney and Katie Glorvigen Tierney, associate partners with Glorvigen, Theis, Lind & Co PLLP in Grand Rapids, MN, are Certified Public Accountants specializing in individual and small-business taxes. If you would like additional information on any issue in this article or specific to your tax situation you can reach them at 218.326.6641