Filing taxes can be another task that causes confusion and anxiety. Even though it is definitely not an enjoyable activity, when you understand how it should be done, it gets easier every year.
If you’re new to the tax filing world or just need clarification, this guide will answer all your questions.
Keep reading this article to learn all the basics of filing taxes, including when the tax filing deadline is, how to prolong the due date, and what happens if you don’t file your taxes.
At the end of the article, we will show you how it’s possible to pay your taxes and make money by doing so.
Are you intrigued?
Let’s get started!
Filing Taxes: Everything You Need to Know
Before we explain details about filing taxes, let’s first make it clear who needs to file a tax return.
Most American citizens and permanent residents who work in the country are required to file tax returns if their annual income exceeds a certain amount.
Some people decide to file taxes even if they make less than specified amounts because they may get their money back. This is usually the case if people:
- Have had federal income tax withheld from their pay;
- Qualified to claim tax credits (like the Earned Income Tax Credit and Child Tax Credit);
- Made estimated tax payments.
Who Needs to File a Federal Tax Return for the 2022 Tax Year?
The IRS releases a table each year listing the filing requirements for individuals not claimed as dependents on another person’s tax return. These figures are from the instructions for Form 1040.
In the visual below, you can see exactly who needs to file taxes and what the minimum gross income is for this tax season:
Simply put, if your gross income in 2022 exceeds the amount shown in the table above, you must file a federal income tax return.
The IRS considered gross income to be all income we received in the form of money, property, goods, and services. Gross income also includes income outside the United States—the sale of stock, a business, or a home—even if the gain isn’t taxable.
There are also other circumstances in which someone must file a tax return.
Other Cases When Someone Must File a Tax Return
Even if you don’t have enough income to meet the above-mentioned requirements, there are a few circumstances in which you must file a tax return for the tax season. Here are some examples of those situations:
- Someone owes special taxes, like the alternative minimum tax, a penalty from an early withdrawal from an individual retirement account, household employment taxes, and Social Security or Medicare taxes on tips.
- Someone (or their spouse) withdrew money from their health savings account (HSA).
- Someone who was self-employed and had net earnings of a minimum of $400.
Now that you know whether you should file taxes this year or not, let’s see when the tax year begins.
When Can You Start Filing Taxes?
Every year, the tax filing season starts in January. And each year, the IRS informs us about the specific date. For example, the 2023 tax-filing period began on January 24th, 2023. From that date on, the IRS started accepting income tax returns.
What usually confuses some people is the fact that you pay taxes for the previous year. So, the purpose of the 2023 tax-filing season is to file taxes for the 2022 tax year.
Also, what people are usually not quite sure about is whether they can file taxes for free. The answer is—yes! There are several services that offer free tax return prep, such as IRS Free File. What’s great about the IRS Free File is that you can file electronically.
You can also use other tax software. If you own a business, your needs will probably suit paid tax software. Some of the most popular are TurboTax, TaxAct, and TaxSlayer. But, if you only need tax software for light use—like using a W-2 to fill out a Form 1040—you can qualify for free tax software from TurboTax.
Another widely discussed topic among tax-payers is the tax refund. Most professionals warn that the average refund is getting lower and lower every year. The average tax refund so far is $1,963, compared to last year’s average of $2,200.
When Is the Tax Day for Filing in 2023?
April 18, 2023, was the tax filing deadline for a 2022 income tax return. This tax day was also the due date for requesting a six-month extension by filling out Form 4868.
If you filled it out at the last minute, the Internal Revenue Service will consider your paper return on time if you properly addressed it, had enough postage, and postmarked and sent it by the filing deadline. And in case you filled it out online, the date and time in your time zone when your return was transmitted determined whether it was on time.
And April 18 is also the tax day to file quarterly estimated taxes. Self-employed people or freelancers must make an estimated tax payment. Those people have another set of deadlines, and their estimated taxes are usually collected four times a year: in January, April, June, and September.
The Tax Deadline for Estimated Tax Payment
Estimated tax payments are taxes paid to the IRS annually on earnings not subject to federal tax withholding. This includes self-employment or freelancer earnings, and income earned on the side like dividends, realized capital gains, prizes, and other non-wage income.
For this group of people, the IRS sets deadlines for collection on a quarterly basis every tax season. In the visual below, you can see the due dates for 2023:
What Happens If You Don’t File Taxes?
For anyone who doesn’t file their federal income taxes by the tax deadline, there may be consequences in the form of penalties and interest.
If you are required to file but fail to do so, the IRS may impose a fine known as a failure-to-file penalty or a late filing penalty. For each month or part of a month that the return is late, the usual penalty is 5% of the tax owed.
The minimum penalty for being late more than 60 days is $435 or the amount of tax owed, whichever is smaller. And the maximum penalty is 25% of your tax bill.
Our advice is to file your taxes as soon as possible if you missed the original deadline. People who were late may be eligible for tax relief in the form of a penalty abatement if they meet certain criteria.
For example, if you have a reasonable explanation for missing the tax day or filing late, you might not owe the penalty. Check the IRS website for more information on how to apply for penalty relief.
The IRS automatically gives more time for filing taxes for some people, such as natural disaster victims, certain military members, or Americans living overseas.
For example, the Federal Emergency Management Agency (FEMA) declared certain regions in Alabama, Georgia, and California federally declared disaster areas due to the disaster caused by recent victims. They have until October 16 to file various individual and business tax returns and make certain tax payments.
What Happens If You Don’t Pay Your Taxes?
If you don’t pay your taxes at all, the Internal Revenue Service will issue a late-payment penalty.
There is a difference between late payment and late-filing penalties. The late-payment penalty affects people who pay their taxes later than they should. The penalty is 0.5% of the unpaid taxes for every month that the outstanding taxes remain unpaid, plus interest.
On the other hand, the late-filling penalty affects people who don’t turn in their Form 1040 and other documents before tax day.
You would pay a combined fee of 5% for each month (or partial month) if your return is late if both penalties were assessed in the same month. However, if both penalties were assessed in the same month, the failure-to-file penalty would be reduced by the amount of the failure-to-pay penalty for that month.
How to Avoid a Failure-to-File Penalty
You can get a tax extension of six months to file your tax return with the IRS if you file it by April 18, 2023.
If you did get an extension, please keep in mind that it only gives you more time to file your tax return. A tax extension doesn’t give you more time to pay your taxes.
How Are Your Taxes Determined?
Knowing how your taxes are determined will help you better understand and calculate your income tax rate.
Do you know how your taxes are calculated? If not, here is an explanation.
The government calculates how much tax you owe by dividing your taxable income into “chunks”—also called tax brackets—and each chunk gets taxed at the corresponding tax rate.
What is great about this principle is that no matter which bracket you’re in, you won’t pay that tax rate on your entire income.
The U.S. has a progressive tax system, meaning that people with higher taxable incomes are subject to higher federal income tax rates. And all the way around, people with lower taxable incomes are subject to lower tax rates.
Final Thoughts
Did you already file your taxes? You probably did. And in case you didn’t—hurry up and don’t wait any longer.
Filing and paying taxes isn’t anyone’s cup of tea, but what needs to be done needs to be done. We can make this process a little easier by understanding and being responsible.
And if you’ve come to the end of this article, you now understand everything you need to know about filing taxes.
As a reward, we will introduce you to the process of Lifestyle Banking, which you can use to pay taxes while having many tax advantages.
Sounds interesting?
Make Tax Payments By Using Lifestyle Banking
Lifestyle Banking is a financial strategy that utilizes your whole life insurance policy. It’s called banking because it works the same way traditional banking does, but with major differences—you don’t need a bank or other third party as a source of finances, and instead of making banks richer, you do.
And the “lifestyle” part means you can finance whatever you need in order to own your own lifestyle. So, with Lifestyle Banking, you can finance anything from family vacations to a new car or house.
Paying taxes is a necessary part of our lives, so why wouldn’t you like to use a process where you can get your money back?
Here is how it works.
You can store one-third of your earnings in your whole life insurance policy. When the tax deadline comes, you borrow money from your policy and pay taxes.
The next step is to make those payments to recapture the principal in interest you paid for the taxes.
By doing so, at the end of the year, you will:
- Capture the principal in interest;
- Utilize the growth in your policy so you can repeat the process the following year. The growth rate is 4% compound interest in the dividends that grow in your policy, and you can use more money as the income increases for tax purposes.
So, when you pay taxes through Lifestyle Banking, you do the same as you would otherwise but successfully make more money and increase your policy’s cash value. That’s because Lifestyle Banking is a system that works for you, not against you.
The best part? You can repeat this process infinitely and without limitations.
What you must be aware of is that this process isn’t something you can buy and forget. You must be dedicated to learning and improving how you use your personal banking system.
Besides technical knowledge and keeping up-to-date with general economic events, you must have the right money mindset.
Only with the right mindset and system that works for you—you can experience wealth.
If you’re ready to learn how to implement Lifestyle Banking into your life and dedicate your time and energy to improving your mindset and overall financial situation, we would be more than happy to support you every step of the way!
Watch Our FREE Masterclass
Here at Wealth Nation, we speak loud and clear about using Lifestyle Banking to finance our lifestyle. We cover specific numbers and reasons why we did what we did.
And we teach you to do the same.
On top of that, we teach you the psychology of money and how to improve your money mindset to become wealth conscious. Because you can’t experience wealth without being wealth conscious.
If you’re ready to learn everything we mentioned and way more, watch our FREE masterclass. It is a great way to learn the basics of Lifestyle Banking in only one hour.
And by the next year, you can pay your taxes and make money by using your personal banking system!
It’s time to live your lifestyle the way you always wanted.