When it comes to filing taxes, 2014 is not your grandfather's tax year. Tax laws change over time, as do the ways that we can file our taxes. Here are a few things you may not know or may not sufficiently appreciate about filing taxes for 2014 and beyond.
There are different ways to file
You may be used to filling out your tax return on paper each year and mailing it in, or perhaps you've been using some other system for many years. If so, consider whether another method might serve you best. The three main ways to file taxes include doing it manually, hiring a qualified tax-preparer to do most of the work for you, or letting a software package help you file electronically on your own. If you're preparing your tax return manually, know that this method can increase the risk of mathematical errors, and you'll need to make sure you include all required supplemental information and schedules. Tax pros, meanwhile, are costly, but a skilled tax pro can often save you more than she charges you. If you want to use tax-prep software, popular titles include TurboTax, TaxAct, and H&R Block At Home.
Note: Those with gross incomes of less than $58,000 can qualify to use the IRS' Free File software. Those earning more can still use the program's free electronic versions of the traditional paper forms.
E-filing has advantages and disadvantages
A key benefit of e-filing is greater accuracy. A Treasury Inspector General for Tax Administration report cited historic error rates of about 25% or more for paper-filed tax returns, and less than 2.5% for e-filed returns. E-filing also tends to be a speedier process, both in preparation and in processing. The IRS aims to get all refunds out within 21 days, but for those who e-file and choose direct deposit, it can be as few as 10 days. On the other hand, e-filing can up your chances of being audited, as paper returns take longer to review. (Remember, though, that an audit is generally no big deal if you've been following the rules.)
There's also a security risk, which leads to the next thing to know about filing taxes for 2014 and beyond.
Protect yourself when e-filing
Whether you're e-filing or filing manually, beware of the growing problem of tax scams (which include identity theft). Beware of any emails or phone calls you receive, supposedly from the IRS, requesting personal or financial information; the IRS generally communicates through the mail and never asks for detailed personal information by email. You can also thwart scammers by filing your return early in order to get it in before they file one for you.
E-filing warrants some extra caution. Use a strong password when storing personal and financial information online in tax-prep software, and consider not storing such data on your computer's hard drive, where it might be accessed by hackers. Instead, save it somewhere external, such as on a CD or flash drive. Electronically filing taxes for 2014 and beyond is especially risky if done on an unsecured network -- e.g., at a coffeehouse with free Wi-Fi -- because your information might be intercepted. E-file at home.
You can delay the filing, but not the payment
We all know that tax returns are due by April 15, but if you're having trouble meeting that deadline, know that you can generally get a six-month extension by filing IRS Form 4868 by April 15. Know, too, that while you can extend the deadline for filing taxes for 2014 and other years, you don't get a tax-payment extension. Both the form requesting the extension and your tax payment are due by April 15. So you'll have to estimate your total taxes due as accurately as you can and send at least 90% of what you will owe. When you eventually file your tax return, if it turns out that you overpaid, you'll get a refund.
Failing to file is a bad idea
This may sound obvious, but believe you me: The IRS will not just sit and pout if you fail to pay your taxes by April 15. It will sock you with penalties that can make you seriously regret filing taxes for 2014 in 2016. In the IRS' own words: "The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late." The penalty is capped at 25% of your total tax due. There are also consequences for paying late: "If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of 1/2 of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date."
Learn more about taxes and make some strategic moves, and you can keep a lot of money in your pocket instead of lining Uncle Sam's. How you go about filing taxes for 2014 and future years matters.
Save even more by taking advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.
Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.