5 last-minute tax tips before April 18
What, it’s April and you still haven’t filed your income taxes?
What, it’s April and you still haven’t filed your income taxes yet?
Well, you’re far from alone. People have a million reasons to procrastinate and, in some cases, run up against the tax filing deadline, which is April 18 this year.
“They are the same people who waited until the night before it was due to write their term paper,” joked Joseph DeGennaro, tax director for Doeren Mayhew in Troy, Mich. He noted that 40% of all the 1040s that his firm will complete this year will be done in the first two weeks of April.
Sometimes, snowbirds who head to Florida for the winter wait until they get back North in the spring to do their taxes. Sometimes, people are afraid they’ll see a very big number for how much they owe in taxes. Sometimes, they’re waiting for paperwork relating to some more complicated investments.
“Many of my clients come in late. In fact, too many,” said George W. Smith, a Southfield, Mich.-based accountant. He estimates that up to 35% of returns that his firm prepares are completed in April. He noted that about 15% of his clients seek an extension every year.
Here are some useful tips if you’ve yet to complete that tax return: DON’T FORGET ABOUT BIG EVENTS IN YOUR LIFE THAT TOOK PLACE IN 2016 Did you buy a house in 2016? Did you retire and begin collecting Social Security last year? Did you have a baby? Many events can trigger different tax rules and paperwork. Give yourself extra time to find exactly what you’ll need.
When you file your taxes for the first time after buying a home, for example, take time to find your closing or settlement statement, called the HUD-1. Additional expenses that you pay at closing — including prepaid interest or points — may be tax-deductible, if they’re not already included on your Form 1098 that reports home mortgage interest, said Lisa Greene-Lewis, a TurboTax tax expert. IF YOU ITEMIZE DEDUCTIONS, TAKE TIME TO REVIEW DONATIONS FOR 2016 “If you donated to places like Salvation Army, Purple Heart, Goodwill and the Vets, use a guide that will help you estimate the value you can claim rather than the $50 per bag that many people tell me the donation was worth,” said Frank St. Onge, enrolled agent for Total Financial Planning in Brighton, Mich.
St. Onge said in some cases you could be underestimating the value of what you donated. See sites such as www.salvationarmyusa.org for a Donation Value Guide. The donated value of a woman’s sweater, for example, could range from $3.75 to $15, depending on quality, according to the Salvation Army guide.
St. Onge said take a picture of what you’re donating during the year, as a reminder of what you gave and for possible evidence if you’re audited. Get donation receipts. WATCH OUT FOR ESERVICES SCAM During a last-minute rush, it could be easy to fall prey to an email that claims to be from Internal Revenue Service e-Services.
The IRS noticed a surge of one e- Services scam targeting tax professionals in late March. The real IRS e-Services program offers Web-based tools to complete certain transactions online with the IRS.
Scam subject lines including warnings like “e-Service account is Blocked” and “24Hrs to Block Your Account.”
The goal is to trick someone into opening a link or attachment so ID thieves can steal user credentials.
The best bet is to go directly to www.irs.gov/eservices if you sense a problem. DO YOU THINK YOU REALLY NEED AN EXTENSION? See Form 4868. You can get an automatic six-month extension of time to file your tax return by filing Form 4868 electronically.
But remember, if you don’t pay what you owe for taxes by April 18, you’ll owe penalties and interest. WHAT DO YOU DO IF YOU OWE MONEY? Make sure to file your tax return by April 18 or request an extension, even if you cannot pay all of what you owe on time, said Marshall Hunt, certified public accountant and director of tax policy for the Accounting Aid Society’s tax assistance program in metro Detroit.
That way, you avoid steep penalties for filing late, Hunt said.
In general, he said, the IRS penalty for late filing is 5% per month up to a total of 25% of the unpaid tax. However, there is a minimum penalty that ends up being the smaller of $205 or 100% of the unpaid tax if the return is more than 60 days late. Important point: If there is a refund or no balance due, these penalties will not apply.
The penalty for late payment is less than for late filing — 0.5% per month, up to 25% of the unpaid tax. If an extension is filed and 90% of the tax liability is paid with the extension, this penalty won’t apply during the extension period if the balance is paid with the return. Interest applies to any unpaid tax.
When it comes to paying your taxes, make sure to pay as much as you can as early as you can. You may be able to get a low-cost loan. Or pay by credit card. But pay attention to the fees and the interest rates associated with a loan.
If you think you need only a few months to pay the bill in full, check into an IRS program that offers an extra 60 days to 120 days to make a payment in full.
A brief additional amount of time to pay can be requested through the Online Payment Agreement application or by calling 800-829-1040.
If you need more time than 120 days, you might be able to sign up via the IRS website for a monthly installment plan as long as you pay your tax debt in full. You might qualify for an online installment agreement if you owe $50,000 or less in combined tax, penalties and interest, and filed all required returns.
See payment options at www.irs.gov/payments.
An Offer In Compromise program exists for tax filers who face severe financial challenges. But the IRS announced that the agency would return any newly filed Offer in Compromise application received on or after March 27 if you didn’t file all required tax returns.
An Offer in Compromise allows the taxpayer to settle a tax debt for less than what’s owed. But Cari Weston, director of taxation for the American Institute of CPAs, warns that the Offer in Compromise is granted only to those in very desperate situations.
“It has high hurdles to be reached,” she said.