Tuesday, April 14, 2015

Don't Panic: A Last-Minute Guide To Tax Preparation


It's the second week in April. Spring is in the air. The flowers are blooming. We're just past opening day for the Orioles (Go O's!). As you begin to enjoy the pleasantness of this time of year, do you have that lingering feeling that you've forgotten something?

April 15 is Tax Day. That's the day all returns must be postmarked or e-filed to the IRS. If you haven't started yet, you may be feeling a bit of panic as the deadline races up to meet you.

In the immortal words of Douglas Adams, "Don't panic!" There's still plenty you can do, and so long as it's in the mail or in the Internet tubes by midnight on April 15, you'll be fine. Take a deep breath, grab a cup of coffee, and make a plan. Also consider these three handy tips: 

1.) You can file for an extension

If you do nothing else to prepare for tax day and there's no hope for getting your return done on time, do this. The IRS will, in most cases, approve an automatic 6-month extension for individuals. Form 4868 asks you to estimate your tax obligation, your total payments and the balance due. If you're due a refund, there's no problem. You'll get your refund as soon as you file your return and you'll have until Oct. 15 to do so. If you owe additional taxes, Form 4868 also includes a way to send estimated payments.

If you're filing on behalf of a corporation or partnership, you can still qualify for an automatic extension of five or six months, depending upon the entity type. The form to fill out there is 7004. It's a bit longer, but requires the same basic information and also includes the option to pay your estimated tax immediately.

There's a penalty involved in late payment. You'll be charged 5% each month or part of a month your return is late, to a maximum of 25%. These charges will be at least $135 or the balance of your taxes due, whichever is smaller. The IRS may excuse these penalties if there's a good reason you didn't file on time. Attach a statement to your return explaining why you didn't pay on time (not your request for extension) and the IRS may forgive the penalty amount. These exemptions are typically granted for people who were out of the country or deployed to a combat zone for a significant part of 2015.

You'll be responsible for interest on the amount due, plus penalties. The IRS charges 0.5% per month or part of a month your account is past due. They'll charge that on the whole unpaid amount. So, if you were to pay your tax bill in full on April 16, you'll be charged a full month's interest.

As expensive as filing for an extension can be, it's better than the alternative. If you don't file, the IRS will eventually file for you. They don't have any incentive to get you any deductions or credits. If you end up owing more than $25,000 in interest and penalties, the IRS will be knocking on your door!

2.) Filing isn't actually that hard

For most people, filing your taxes takes less than half an hour. If you worked only one job, have one bank account, and don't have a lot of deductions, you won't have to fill out more than a few forms. The 1040-EZ is pretty accurately named. It is, in fact, easy.

You really only need your W-2 and you can file from your computer desk. Make a game of it. Set a clock- see if you can beat a 20-minute time goal!

3.) Don't forget the little deductions!

If you're really scraping to cut your tax bill, there are a few easy deductions you might miss. For example, if you subscribe to a financial newsletter, that's a deductible expense. If you consulted with an attorney or another paid professional to prepare a will or trust for your assets, that's also deductible.

Your medical expenses can be somewhat flexible, too. For instance, if you installed a hot tub on the advice of a physical therapist, that can be deductible. Laser eye surgery can also be a deductible expense if it promotes the proper functioning of the body.

There's a thin line to walk with aggression. It's very unlikely you'll get any grief from the IRS provided you can prove most of what you're claiming. At the same time, saving a few bucks on your taxes isn't worth a massive headache.

If you're getting a refund, make sure to directly deposit it to your Destinations Credit Union account!

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