Editorial: It’s time to file your taxes

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The ISD Editorial Board explains how to file taxes and why it needs to be done. 

Editorial Board

A new year has been underway for some months now and that means it is everyone’s favorite time of year: tax season. 

Deadlines

The Internal Revenue Service (IRS) announced the nation’s tax season started Feb. 12, meaning that since then the tax agency is accepting and processing 2020 tax year returns.

As of March 17, the federal 2020 tax year has been extended from April 15 to May 17, so people in the U.S. now have a longer amount of time to complete and send in their federal 2020 tax year returns. However, the postponement to May 17 only applies to individual federal income returns and tax payments otherwise due April 15, not state tax payments or deposits or payments of any other type of federal tax. 

State filing and payment deadlines vary and are not always the same as the federal filing deadline, so please check to see what deadlines you need to meet this tax season. The deadline to file state taxes for Iowa is April 30.

Where to file

When starting to file your taxes there are several options to choose from:

“Free File”: If your adjusted gross income is less than $72,000, the IRS has free tax preparation software that can make preparing your tax return easier. It has features that can help you figure out any deductions or credits you might be eligible for this tax season.

IRS online forms: If your adjusted gross income is higher than $72,000, the IRS has electronic versions of the normal paper tax forms that will do the math for you. However, they only offer basic guidance and won’t give you the same kind of help figuring out what deductions or credits you might be eligible for like the “Free File” option.

Tax preparation software: If you need more guidance than what the IRS online forms provide, you can pay a fee to use these online tools, which are available through several providers such as TurboTax, H&R Block, TaxAct and TaxSlayer. These software options will walk you through how to prepare your tax return and help you figure out any deductions or credits you might be eligible for.

Tax preparer: If you realize you need one-on-one help from an expert, there is always the option that you can go to a tax preparation firm or an accountant. The IRS has a directory of verified tax preparers that may help you find a verified tax preparer in your area. A warning: Make sure you work with someone you can trust because you will be giving this person access to a lot of sensitive personal information. Choose your tax preparer wisely if this is the route you choose.

How to file

When beginning to file your taxes, you will need a lot of information to make sure you file your taxes correctly. The IRS has a list of all available forms that could be used when preparing your taxes and instructions for how to fill out each one on their website.

But beyond all of those possible options of forms (all depending on different aspects of your life) below are the most commonly needed information and forms used in the tax process.

Personal information you need:

  • A copy of last year’s tax return in order to access your adjusted gross income (AGI)

  • Valid Social Security numbers for yourself, your spouse and any dependent, if applicable

Income and receipts:

  • Social Security benefits

  • Unemployment compensation

  • All receipts pertaining to your small business, if applicable

  • Income receipts from rental, real estate, royalties, partnerships, S corporation and trusts

College students:

  • Form 1098-E, showing any student loan interest you’ve paid

  • Form 1098-T, showing how much you paid in tuition, as well as any amounts you received from grants or fellowships

Other income:

  • W-2s, showing your annual wages from all of your employers

  • Form 1099-INT, showing interest paid to you throughout the year

  • Form 1099-G, showing any refund, credit or offset of state and local taxes

  • Forms 1099-DIV and 1099-R, showing dividends and distributions from retirement and other plans paid to you during the year

Affordable Care Act (ACA) filers:

After you have all of your needed forms together and you have your AGI and the Social Security numbers for your family, you can get to work preparing and filing your 2020 tax year returns. Select the filing option that best suits your needs and it should be smooth sailing from there.

Why file?

Filing your taxes may seem like a hectic and stressful time, and it can be, but it is still an important part of being a U.S. citizen and, by law, you have to do it. But what incentives are there to actually file your taxes?

Incentive one: money

When you file your taxes there is a possibility that you will receive a tax refund.

You get a tax refund when you pay more taxes to your state government or the federal government than the actual amount you owed. If that happens, the government will cut you a check for the amount you overpaid. The average 2019 tax refund was nearly $3,000, according to the Internal Revenue Service.

Don’t think of a refund as “free money” — it’s actually already yours, but to get it, you’ll need to file your tax returns.

Incentive two: you don’t commit a crime

Not filing your taxes is a crime and there are consequences for not filing them.

First there are penalties:

  • Late filing penalties 

    • If you file more than 60 days after the due date of the return, the penalty can be up to a maximum of 25 percent of the unpaid tax.

  • Late payment penalties

    • Filing an extension to file your return does not extend the due date for the payment of taxes. Late payment penalties accrue at a rate of 0.5 percent of the unpaid taxes per month, up to a maximum of 25 percent of the unpaid tax.

  • Fraudulent failure to file penalties

After the penalties, it becomes an actual crime:

Failing to file a tax return can be classified as a federal crime punishable as a misdemeanor or a felony. Willful failure to file a tax return is a misdemeanor pursuant to IRC 7203. In cases where an overt act of evasion occurred, willful failure to file may be elevated to a felony under IRC 7201. If you are charged with a criminal tax violation, the punishment can be severe and may include fines and jail time.

So please, if not for the incentive of cold, hard cash in your pockets, then please file your taxes to avoid penalties and possible jail time.