There are more and more things that I do or talk about in my job that I don’t realize are uncommon knowledge until someone tells me. These are things I've picked up throughout my career, but they are generally taught in specific college courses or are part of training for specific career fields. A lot of them really SHOULD be part of secondary education or at least available in easy to access and easy to understand publications.
I am so thankful for the crazy path my career has taken because it has led me to the best part of my job - sharing this information with creatives like you.
IRS rules and Federal Tax law SHOULDN’T be a bear to deal with, but this is our unfortunate reality. I’ve talked to a few people lately who did not realize that they could file their taxes this year, even if they did not file last year. Additionally, I think it is even less common knowledge that you can file your tax return, even if you can’t afford to pay any taxes owed. The IRS offers payment plans, some with a $0 set up fee.
So, first and foremost - FILE YOUR TAXES THIS YEAR!
The penalty for not FILING taxes is 10x the penalty for not paying the amount due.
Failure to File penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late, not to exceed 25% of your unpaid taxes.
Failure to Pay penalty is 0.5% for each month or part of a month the tax remains unpaid, not to exceed 25% of your unpaid taxes
*If both penalties are applied in the same month, the failure to file penalty is reduced by the amount of the failure to pay penalty. For example, instead of a 5% failure to file penalty for the month, the IRS would apply a 4.5% failure to file penalty and a 0.5% failure to pay penalty.
It doesn't matter when you file your taxes, the penalties are calculated based on when you SHOULD have filed and what you SHOULD have paid.
Okay, Esther, you’ve convinced me! I’ll file my 2023 taxes … but my documentation is all over the place…
We’ve talked about this before on the blog here and I'm going to give you an additional tip now.
Pull your bank and credit card statements for 2023
Highlight all business related income and expenses.
I suggest using different colored highlighters for different categories (Income, Supplies/Materials, Software Subscriptions, Apps, Website/Computer expenses, etc).
Add up each category and use those numbers for filing your taxes.
Keep those statements and any receipts/invoices as backup documentation for your filing for 7 years.
Awesome! That’s a great plan, but like, I don’t know how much money will I owe and/or if I need to set up a payment plan?
Totally understandable, those calculations are not one size fits all. My go to is using the Turbotax Refund Calculator here.
You'll need to enter the information you know for your family demographics, any W-2 income information including any taxes you paid throughout the year, and then your estimated self-employment income. The amount you enter for self-employment income is the amount you made AFTER expenses. Don’t forget to deduct mileage from your income if applicable!
*note: this is a REFUND calculator. If the number given is negative, it means you OWE money to the IRS.
Here’s an example:
If you are filing as a single person, claiming no dependents, and are 35 years old with an income of $40,000 AFTER expenses for 2023, you would owe the IRS $7,672.
No, Esther, you don’t understand, there’s no way I can be ready for this by April 15th!
I hear you, in that case, you may want to consider filing an extension. This will extend the time you have to file your tax return until October 15th of this year. It does NOT extend the time you have to pay tax on what you owe; however, if you file the extension, any tax you owe will only be subject to a .05% monthly fee and not the full 5% per month for not filing. Additionally, if you use the IRS Free File software, it costs nothing to file an extension!
Esther this is all great information, but I need individual help.
No problem. Send me an email at esther@artbeyond.org and I would be happy to answer general questions or put together a proposal for assisting you with getting ready to file.
❤️- Esther
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