What, Me Worry? Last Minute Taxes
They say only two things are certain: death and taxes. Add procrastination to the list. Even though everyone knows the deadline for filing federal individual income tax returns is April 15, many people still wait until the last minute to do anything about it. According to the Internal Revenue Service, 20 to 25 percent of all Americans wait until the last two weeks before the deadline to prepare their returns. At that late date, there are only two things you can do: File your taxes pronto, or request an extension.
Not that there’s anything inherently wrong with waiting. If you owe taxes, you might want to earn interest on your money right up until the minute before it departs your bank account. Maybe you've been too busy with your business to keep track of the time. Or maybe you just plain forgot. Whatever the reason, to avoid scrambling at the last minute, experts recommend preparing in advance by keeping yourself organized year-round with all-important documents — including receipts — maintained in one place.
"For one reason or another, we often advise a client to extend their returns."
- Mike Scholz, tax director, Wegner CPAs, LLP
Having everything in one place — even if it’s just a shoebox — will help make preparation of your income tax return easier. Some of the documents that might be required to complete the process include your Form W-2 (your employer must mail the form, which shows your earnings and taxes withheld, by Jan. 31); Form 1099-INT, for interest earned on a bank account, Form 1098, Mortgage Interest Statement, which shows mortgage interest paid on a loan for your own home; and receipts for all purchases and payments, including those for business, healthcare and education.
You will also need your Social Security number and, if you are filing jointly, you will need the Social Security number of your co-filer. Social Security numbers are also required for all listed dependents for whom you are claiming a dependency exemption. It also helps to have a checklist of deductions that you might forget in your rush to file your return. Bill Palmer, a certified financial planner with Win Wealth Management of Denver, Colorado, sends his clients a last-minute, year-end tax planning list, which reminds them to take required minimum distributions, make end-of-the-year gifts, establish a 401k or other type of retirement plan, postpone income and accelerate deductions.
The boil-down: Keep a list throughout the year and add to it as possible deductions come to your attention.
Check out our Tax Preparation Checklist for an easily-printable list of documents to collect before preparing your taxes.
Once you're ready, experts recommend filing your taxes electronically. Doing so can mean a more accurate tax return, a faster refund and — if every minute counts — the luxury of last-minute filing. Since 1990, nearly 1 billion people have filed their taxes electronically, according to the IRS. The majority of individual taxpayers — 70 percent — file electronically, either on their own or via a tax preparer.
TurboTax makes it easy to prepare and file your taxes online, which is the fastest way to get your money if you’re expecting a tax refund.
The biggest problems with tax returns are often the easiest to prevent because they usually occur through carelessness or hurry. Even the simplest mistakes, however, can delay a refund.
The three most common mistakes made by flustered filers are math errors (easily prevented with a calculator or tax software), incorrectly written Social Security numbers (be sure to proofread) and failure to sign or date the tax return.
To request an extension for filing your return, use Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, which is available for download at IRS.gov. Extensions are generally granted automatically and you do not have to explain in your initial request why you are seeking one. The only requirement is that the extension request must be filed no later than midnight on April 17.
Again, TurboTax can help here. You can file a tax extension for free using TurboTax Easy Extension. It only takes a few minutes to get 6 months of extra peace-of-mind.
“For one reason or another, we often advise a client to extend their returns,” said Mike Scholz, tax director of Madison, Wisconsin-based Wegner CPAs, LLP. “There are two ways to file an extension: either paper or electronically. It’s a form that is less than half a page long and very easy to fill out — short and sweet and simple.”
Each year approximately 7 percent of U.S. taxpayers — around 8 million people — request an extension. There is one caveat: An extension of time to file is not an extension of time to pay taxes owed, so be sure to pay your estimated balance — or as much of it as possible — even if you request an extension. Form 4868 offers a variety of payment options.
“Sometimes they may not have the money to pay the tax right away," Scholz said, "but that’s OK, because it’s always a better idea to get the extension in without payment than to not file an extension and file a late return.”
Michael Simic, who heads Parma, Ohio-based Simic CPA, agreed. “Filing the extension on time is a must,” he said. “That will keep you out of that late-filing penalty. Then, if there is a balance due, there will still be a late-payment penalty, but it is much more reasonable.”
If you’re worried that you can’t pay what you owe, the IRS recommends filing your taxes or extension request and then calling to discuss setting up a payment plan. The IRS also offers a payment agreement application on its website.
No matter what the reason for the wait, April taxes don’t have to bring May tears. Stay prepared year-round, consider filing online, and get familiar with the automatic extension form to avoid seasonal panic. Then sit back and welcome spring.
Question: Does your filing date determine whether you receive a refund?
Answer: Your filing date does not affect whether you are entitled to a refund.
According to the IRS, however, over 70 percent of returns filed before April 1 receive refunds, while 61 percent of late filers end up owing money.
Want to know when your refund's coming? Find out at IRS.gov or by calling the IRS Refund Hotline at 1-800-829-1954.