Answers to the Most Common Tax QuestionsPhoto by Charles Deluvio

Originally Posted On: https://www.credello.com/

 

Answers to the Most Common Tax Questions

Raise your hand if you’ve put off doing something because the thought of doing it is making you anxious, while the act of putting it off is making you equally as anxious. Been there.

If you’re freaking out about filing your taxes before the new Tax Day, fear not—we can help. We’ve got answers to some of the most common questions people ask about taxes.

5 tax FAQs from last-minute filers

When are taxes due?

Hopefully you know the answer to this by now, but that’s what we’re here for. Normally, Tax Day falls on April 15—unless that’s a weekend or holiday, in which case it gets bumped to the next business day. This year, the IRS pushed the deadline back a month because of COVID-19, meaning the deadline is now May 17 (because May 15 is a Saturday). You’re getting down to the wire, procrastinators.

Should you take the standard deduction or itemize?

According to a recent tax survey of 1,000 Americans, most people (about 68% of respondents) take the standard deduction. But doing so could mean you’re leaving money on the table. When you itemize your taxes, you can potentially reduce your taxable income, thus increasing the amount of your refund.

The standard deduction varies based on your filing status, and it can change from year to year. For the 2020 tax year, the standard deduction amounts are:

  • $24,800 for married couples filing jointly, up $400 from 2019
  • $12,400 for single people or married couple filing separately, up $200 from 2019
  • $18,650 for heads of household, up $300 from 2019

The best thing to do is see if your itemized deductions would exceed the standard deduction based on your filing status. If they don’t, stick with the standard deduction.

What happens if you don’t file your taxes?

If you don’t file a tax return with the IRS, you could be missing out on money the government owes you. Of course, that’s the best-case scenario. Alternatively, if you owe Uncle Sam money, you could face penalties and interest, and even get audited by the IRS.

Big Brother is watching even if you forget or intentionally don’t file a tax return. And if that’s the case, the IRS essentially can file a return for you by collecting this data as an Automated Substitute for Return, or ASFR. This isn’t nearly as pleasant as ASMR videos on YouTube.

This type of return basically assumes the worst, accounting for income but not deductions. And if you don’t contact the IRS quickly after receiving an ASFR, the organization can start coming after you by garnishing wages or freezing your bank account. It’s best to avoid this situation, especially because there’s no statute of limitations for the IRS to collect taxes if you don’t file a return.

What if you can’t afford to pay the taxes you owe?

If you can’t afford to pay taxes you owe to the IRS, one option is to apply for an individual payment plan. But be aware that you might have to pay a setup fee, as well as potential penalties and interest fees.

Alternatively, you can pay your taxes with a credit card, but if you have a high interest rate and can’t pay it back on time, you’d be in a similar spot as you would be with an IRS payment plan.

Another option, especially if you’re swimming in debt, would be to take out a personal loan for debt consolidation to streamline your debt into a single, low-interest monthly payment. A debt consolidation loan can help you save money on interest and pay off your debt more quickly.

How long does it take to get your tax refund?

The IRS issues most tax refunds within 21 days, but it can take additional time to arrive based on several factors, including if your return has errors or is incomplete. Some 2020 returns could require additional review because of issues involving Recovery Rebate Credit amounts, according to the IRS.

While it’s natural to continually refresh your bank account from the time you submit your return until that refund finally hits your account, make sure you’re not relying on this money to pay your rent or other monthly expenses. Sure, death and taxes are the only things you can count on in life, but getting your refund in a timely fashion isn’t.