Everything You Need To Know To Unfuck Your Taxes
Take a deep breath.
So, the tax deadline this year is April 18th. And you're scared.
Everybody is. There are a million ways to fuck up, fuck yourself, and get fucked when it comes to doing (or not doing) your taxes.
Don't panic. We spoke to a few tax experts to help answer your most stressful, last-minute tax questions.
If your taxes are pretty standard (one W2, you didn't move) you are in luck. You can just do your taxes on TurboTax and chill.
Be careful, though: you can lose a lot of money by simply clicking the wrong box in TurboTax.
Don't rush it. Be as careful and vigilant as possible when doing your own taxes. Re-read things that are confusing and ask a *real adult* if something doesn't make sense.
Pro tip: if you made under $62,000 last year, you can get the power of the most popular tax preparing software for free.
The IRS has partnered with tax software providers (including TurboTax and Jackson Hewitt) to help low and middle income tax payers file for free.
You basically just use the services like normal, but you have to access them via IRS.gov/freefile to ensure you get the free version.
FYI: it only works for personal taxes, not businesses, including sole proprietorships (aka freelancers). And TurboTax charges you extra when you file as a personal business, which sucks.
If your taxes are complicated (more than one W2, you moved last year, etc), and you can afford one, an accountant will help you a ton.
The baseline cost for most accountants is around $250, but they often save you enough on deductions to basically pay for themselves.
The more organized you are with your documents before seeing the accountant, the better the price will be. If your accountant has to spend hours poring through your bank statements, they're going to charge you extra. And costs usually go up after April 1st, because so many people are scrambling for accountants.
Freelancers should be making quarterly tax payments....but that doesn't always happen, which means you may already be familiar with huge tax bills. But there's good news: You can write off a TON of expenses.
If you only have 1099s (the form for most freelance agreements) to report as income, you file what is called a Schedule C, which is for small businesses (like an LLC with one person) or sole proprietorships (like a freelance writer, where your name is essentially your business).
"In that case you can write off pretty much every expense you incur trying to make money in your line of work," Josh Zimmelman, president of New York based Westwood Tax and Consulting, told BuzzFeed.
Things like computers, software, advertising costs and travel (a taxi to a meeting, a bus pass) count. Even if, for example, you flew to another city pursuing a sales lead that didn't end up working out, that travel can be written off.
"Basically anything associated with you making money or trying to make money," Zimmelman says.
The Freelancers Union has a super helpful guide to taxes if you're looking for more freelance-specific tips.
Even if you're not a freelancer, there may be some deductible expenses you don't know about:
If you have a job (and therefore a W2) but you incur travel costs that aren't reimbursed by your job, say you take a taxi to a meeting and you don't have any sort of travel allowance at work, that's a deduction. You can list that expense on a Schedule A tax form.
BUT, not everybody can claim Schedule A, which is for people that itemize their deductions.
It works like this: you can do either itemized deductions, or the standard deduction. The standard deduction is about $6,100 for a single person. If the total of your itemized deductions is more than that, then you you do a Schedule A.
Something you may not know, though, is that state and city taxes count as itemized deductions. So if you live in a place with high local taxes (like New York City,) you will probably end up doing a Schedule A.
If most of your income is cash (bartenders, servers, strippers) make sure you declare it all.
"When it comes to cash, the rule of thumb is declare anything. It's not worth it," Zimmelman told BuzzFeed.
Basically, if you get caught not declaring income that you made, you could go to jail.
"I tell my clients [who have cash incomes], if you want to be aggressive, be aggressive with expenses," Zimmelman says.
If you get your tax bill and you can't afford to pay it: you don't go straight to jail.
Side note: This has happened to me! It will be okay!
You can apply for a payment plan (aka an installment agreement) with the IRS. You can apply online or call them to set something up. As long as you make your payments every month, you will be in compliance and nothing bad will happen to you.
"If you do have a large tax bill, reach out, be proactive," Zimmelman says. "Don't ignore it. Don't flip out. That's when problems arise."
But if your tax bill is more than $10,000, you should probably get a lawyer.
A lawyer who specializes in tax issues can help you get a better payment plan than you would if you just call the IRS, according to Priya Mishra, a tax attorney at the tax resolution firm Top Tax Defenders.
"There's a partial payment plan [a lawyer] can set up in which you'll pay your balance over the course of six years, but actually end up paying less than what you owe," Mishra told BuzzFeed. "A tax payer may not know that on their own."
Enlisting the help of a tax lawyer is going to cost you at least $1,500, but if you're in real tax trouble, it will probably save you money and hassle in the long run.
More good news: if you're not rich, it's unlikely you will get audited.
"The average person, someone making under $100k, I would say there's less than a 1% chance of being audited," Zimmelman told BuzzFeed. "Once you make around $200k, you are more likely to be audited."
That makes sense, because the IRS is trying to maximize its efficiency.
"The IRS wants to go after big fish where they can make money," Zimmelman says. "Going after someone like you or me is not worth their time. If they go after someone with $500 in errors, they're getting $500 for wasting their time."
But if you're claiming a bunch of deductions, you're at higher risk for an audit.
"People that file Schedule C, that claim certain expenses, like the Business Use of Home deduction, and they're aggressive, they could be targeted for audits," Zimmelman told BuzzFeed.
"A Schedule C is a red flag for an audit," Mishra told BuzzFeed. "Younger folks may not know that."
If you do get audited, it's probably not the end of the world.
Most audit letters are for very minor discrepancies. Maybe you forgot to declare a small amount of money you made from interest on a savings accounts. You'll have to pay a small amount, then it's settled and you move on.
Some audit letters may be more serious.
"If you get a notice saying 'you claimed $36,000 in advertising costs, can you prove that?' then we need to put together all the receipts and substantiate and prove it to the IRS," Zimmelman says.
Repeat: an audit letter is not the end of the world.
"Just because you get an audit letter in the mail, doesn't mean you're going to jail. It doesn't mean that you're going to owe money. It just means the IRS wants more information," Zimmelman says. "Very often they result in something called a "no-change" where nothing actually happens with that notice."
"People freak out when they get a notice from the IRS," Zimmelman says. "The IRS is not scary. I find them to be quite reasonable."
But Mishra says there are some tips for talking to the IRS that people may not know.
"Every time you call the IRS, you're dealing with a different person on the line, each with a different level of knowledge about your case," Mishra told BuzzFeed. "Anybody calling off the street you won't know to ask and you may get pushed around."
Mishra says if you're not getting what you need from the IRS operator, hang up, call back and talk to a different person.
"When you call, don't be rude to the agent," Mishra says. "They'll make a note about you in the system, and then that note will be seen by the next agent you talk to."
If you are paying off student loans, there's a tiny bit of relief available.
"You're only allowed to deduct the interest you pay on student loans," Zimmelman told BuzzFeed. "Even if you're paying $2,000 a month, if your interest only happens to be $10 a month, you can only deduct that $10 amount."
If you have been paying student loans, you should have received a 1098-E form, which will list how much you've paid in interest over the past year.
But even then, you are only allowed to deduct up to $2,500 in interest paid. Even if you paid $5,000 in interest this year, your deduction is capped at $2,500. Plus, sadly, if your income increases above $65,000, this deduction is reduced. If your income exceeds $80,000 you lose this deduction altogether.
If you moved states during the year, things can get a bit complicated.
"If you do move in the middle of the year, you may be required to file and pay taxes in both states," Zimmelman told BuzzFeed.
However, if you lived in or moved to a state with no income tax, you only need to file in the one state (where they do have income tax). Florida, Nevada, Texas and Washington states have no state income tax.
"If both states have income taxes, you would have to allocate the income between them," Zimmelman says. "For example, if you left CA for NY, you would only have to pay taxes to CA on income earned in CA. That awesome new NY job is only subject to tax in NY."
Income earned on interest or dividends must also be allocated. In Zimmelman's words, "This stuff can get tricky, so I recommend a professional for this."
If you've been working for a few years but for some reason you've never filed your taxes, you should still file for those years.
"Track down old information W-2's and 1099's and move quickly," says Zimmelman. "If you've been an employee and had taxes taken out, you lose out on the ability to get your refund three years from the due date of the tax return."
Basically, you're not going to get a refund for returns that are more than three years old, but you should still definitely file all your past returns ASAP.
"If preparing the back taxes is not possible due to time restrictions, go ahead and file 2015," Zimmelman says. "Once the return is received, you will likely receive notices about missing prior year tax returns."
If you feel like filing your back returns is too much to handle, consider getting the help of an accountant or a tax lawyer.
Whatever you do, don't try to scam the IRS.
James Hutchings, a CPA at Top Tax Defenders, says people trying to game tax deductions is more common than you think.
"I've got one on my desk right now, she tried to use her sister's kid [to qualify for the Earned Income Tax Credit]," Hutchings told BuzzFeed, "She got caught, and now she won't be eligible for the credit for five or more years."