Now that the tax deadline has passed, if you didn’t file a tax return or an extension, take action now. Here are a few things to consider:
- File and pay soon. If you owe taxes, you should file and pay as soon as you can, which will stop the interest and penalties that you will owe. The IRS offers IRS Direct Pay, a secure and easy way to pay directly from your checking or savings account. The IRS does not charge a penalty for filing a late return if you are due a refund.
- E-file: No matter who prepares your tax return, you can use IRS e-file through Oct. 17. The IRS will send you electronic confirmation when we receive your tax return, and they issue more than nine out of 10 refunds in less than 21 days.
- Pay as much as you can. If you owe but can’t pay in full, you should pay as much as you can when you file your tax return. You should pay what you owe as soon as possible to minimize penalties and interest
- Set-up an installment agreement. If you need more time to pay your taxes, you can apply for a direct debit installment agreement. You don’t need to write and mail a check each month with a direct debit plan.
- A refund may be waiting. If you are owed a refund, you should file as soon as possible to get it. Even if you are not required to file, you may still get a refund if you had taxes withheld from your wages or you qualify for certain tax credits like the Earned Income Tax Credit. If you don’t file your return within three years, you could lose your right to the refund.
Sole proprietors and independent contractors are two types of self-employment. If this applies to you, there are a few basic things you should know about how your income affects your federal tax return. Here are six important tips from the IRS:
- SE Income. Self-employment can include income you received for part-time work. This is in addition to income from your regular job.
- Schedule C or C-EZ. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet certain other conditions. See the form instructions to find out if you can use the form.
- SE Tax. You may have to pay self-employment tax as well as income tax if you made a profit. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. If you owe this tax, attach the schedule to your federal tax return.
- Estimated Tax. You may need to make estimated tax payments. People typically make these payments on income that is not subject to withholding. You usually pay estimated taxes in four annual installments. If you do not pay enough tax throughout the year, you may owe a penalty.
- Allowable Deductions. You can deduct expenses you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.
- When to Deduct. In most cases, you can deduct expenses in the same year you paid, or incurred them. However, you must ‘capitalize’ some costs. This means you can deduct part of the cost over a number of years.
Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
54 cents per mile for business miles driven, down from 57.5 cents for 2015
19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
14 cents per mile driven in service of charitable organizations
The business mileage rate decreased 3.5 cents per mile and the medical, and moving expense rates decrease 4 cents per mile from the 2015 rates. The charitable rate is based on statute.
The IRS has recently published some tips about how children may help reduce the amount of taxes owed by parents for the year. If you’re a parent, here are several tax benefits you should look for when you file your federal tax return:
- Dependents. In most cases, you can claim your child as a dependent. You can deduct $4,000 for each dependent you are entitled to claim. You must reduce this amount if your income is above certain limits.
- Child Tax Credit. You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit.
- Child and Dependent Care Credit. You may be able to claim this credit if you paid for the care of one or more qualifying persons. Dependent children under age 13 are among those who qualify. You must have paid for care so that you could work or look for work.
- Earned Income Tax Credit. You may qualify for EITC if you worked but earned less than $53,267 last year. You can get up to $6,242 in EITC. You may qualify with or without children. Use the 2015 EITC Assistant tool at IRS.gov to find out if you qualify.
- Adoption Credit. You may be able to claim a tax credit for certain costs you paid to adopt a child. For details see Form 8839, Qualified Adoption Expenses.
- Education Tax Credits. An education credit can help you with the cost of higher education. Two credits are available. The American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If the credit reduces your tax to less than zero, you may get a refund. Even if you don’t owe any taxes, you still may qualify. You must complete Form 8863, Education Credits, and file a return to claim these credits.
- Student Loan Interest. You may be able to deduct interest you paid on a qualified student loan. You can claim this benefit even if you do not itemize your deductions.
- Self-employed Health Insurance Deduction. If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid during the year. This may include the cost to cover your children under age 27, even if they are not your dependent.