
Missed the tax deadline? Here’s what you should do
If you haven’t filed your taxes yet, don’t panic — but act fast.
Tax deferral is a concept you need to understand. Here’s what it means.
Tax deferral is when taxpayers delay paying taxes to some point in the future. Some taxes can be deferred indefinitely, while others may be taxed at a lower rate in the future. Individual taxpayers and corporations may defer certain taxes; retaining corporate profits overseas is also a form of tax deferral.
To defer taxes on earnings, an individual taxpayer must place funds into a retirement account. If the taxpayer withdraws the funds before the age of 59.5, he or she incurs an early withdrawal penalty of 10 percent of the total withdrawn. Earnings in the account withdrawn after this age threshold are taxed at a more favorable rate.
There are seven tax-deferred retirement accounts available to individual taxpayers:
Corporations can defer taxes using accelerated depreciation. Under this approach, taxes are reduced in the present by recognizing less revenue or by increasing expenses. This has the effect of shifting tax payment to future periods. Taxes on profits earned in foreign countries are commonly deferred by reinvesting or leaving the profits overseas.
Philip had accumulated $100,000 in his IRA by 2015, and the account earned $10,000 in 2016. He did not owe any taxes on the $10,000 gain; instead, Philip will pay taxes on earnings when he withdraws funds from the IRA decades from now.
Philip was in a 33 percent tax bracket and would have had to pay $3,333 in taxes on the $10,000 earned in 2016 if it had not been in a tax-deferred account — which would have reduced the net gain to $6,667. Because IRAs are tax-deferred, Philip harvested a return on the full $10,000 rather than the notional after-tax $6,667. The advantages of tax deferral compound year after year.
If you haven’t filed your taxes yet, don’t panic — but act fast.
Typically, taxpayers have two options: Take the itemized deductions or take the standard deduction.
Regardless of what may cause a person to miss the tax-filing deadline, there are potential consequences.
Applying for more time to file your taxes is easy. Just don’t put off paying your tax bill.
The fast-approaching deadline for filing your 2021 taxes is April 18, 2022.
There are seven tax brackets for most ordinary income: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
The credit was confusing even before Congress revamped it for 2021.
Here’s how to use a Roth IRA to pay for your child’s college tuition.
This popular tax break can be one of the trickiest.