Tax tips for last-minute filers
You swore you wouldn't wait until the last minute ever again, but as tax time looms large, the clock is ticking. There's no need to panic, but to help you get started, follow these tips:
1. File electronically: Use IRS e-file because it's safe, it's easy and it saves time. If you expect a tax refund, you'll get your money faster when you e-file, because the IRS processes electronic returns faster than paper ones. E-filing is also more accurate -- less than one percent of electronic returns have errors, compared with 20 percent of paper returns.
2. Check, double-check and triple-check: Carefully check identification numbers -- usually Social Security numbers for you, your spouse, dependents and persons listed in relation to claims for the Child and Dependent Care Credit or Earned Income Tax Credit. Missing, incorrect or illegible Social Security numbers can delay or reduce a tax refund. While you're at it, check your math to ensure that you have determined the correct refund or balance due. Don't forget to sign and date your return -- that goes for both spouses, if you are filing jointly.
3. Mailing your return and payment: If you are mailing a return, find the correct mailing address at irs.gov. Click the Individuals tab and the "Where to File" link under IRS Resources on the left side. If you owe Uncle Sam money, the check should be made payable to "United States Treasury" and you should enclose it with (but not attached to) the tax return or the Form 1040-V or Payment Voucher, if used. The check should include the Social Security number of the person listed first on the return, daytime phone number, the tax year and the type of form filed.
4. Contribute to retirement accounts: Taxpayers received an average refund of about $3,000 for tax year 2010 and are on pace to receive about the same amount in tax year 2011. That means lots of Americans actually had the money to make a contribution to an IRA. If you haven't made an IRA (deductible or non-deductible) or Roth IRA contribution for 2011, you need to do so by the April 17 tax filing deadline. Even if you go on extension, the deadline is April. If you have a Keogh or SEP and you file for an extension, your contribution deadline is the extension deadline, or Oct. 15, 2012. For 2011, the maximum IRA contribution you can make is $5,000 ($6,000 if you are age 50 or older by the end of the year). For self-employed persons, the maximum annual addition to SEPs and Keoghs for 2011 is $49,000.
To see if qualify for the full annual IRA deduction in 2011, check the IRS website. The rules state that you can deduct your contribution is you: 1) Are not eligible to participate in a company retirement plan; or 2) If you are eligible, you have less than a certain amount of adjusted gross income (AGI). For single, the threshold is $56,000 or less, for married couples filing jointly, its $89,000 or less. If you are not eligible for a company plan but your spouse is, you can deduct your traditional IRA contribution, but your combined AGI must be less than $167,000.
5. File an extension: If you can't meet the April 17 deadline, then file Form 4868 by April 17 or face a nasty penalty of 4.5 percent per month of the tax owed and a late-payment penalty of 0.5 percent a month of the tax due. Form 4868 gives you a six-month extension of the filing deadline until Oct. 15, 2012, but there's a major caveat: The IRS gives you six extra months to file, not six extra months to pay. You must estimate your tax liability for 2011 and pay what you think you owe when you file for an extension. The maximum late filing penalty is 22.5 percent and the late-payment penalty is 25 percent.
6. Payment options: The IRS provides lots of ways for you to pay. You can do it the old-fashioned way and send a check, you can authorize an electronic funds withdrawal from your bank account and you can also pay by credit or debit card. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee, so be sure to check out how much the convenience factor is worth to you.
7. If you can't pay the taxes due: Do not go silent on the IRS, ever. If you owe taxes but can't pay the full amount by the deadline, file your return on time and pay as much as you can to avoid penalties and interest. You should also contact the IRS to ask about alternative payment options. If you owe less than $50,000 in combined tax, penalties and interest, you can request additional time to pay by completing an Online Payment Agreement (OPA) application or by calling 1-800-829-1040.
If you can't pay your taxes in full within 120 days, a costlier option is an IRS installment agreement. Complete an Installment Agreement Request (IRS Form 9465-FS). There are a couple of caveats: You must have filed all of your prior year's tax returns, there's a user fee of $105 ($52 if payments are automatically deducted from a bank account) and you'll pay Uncle Sam 4 percent annualized interest on the unpaid balance.
8. Use a lifeline and hire a CPA: There's probably no way to get a CPA this late into tax season, but it might be worth it to you to file an extension, pay any tax due and in a few weeks or so, dump your documents on a CPA and let a pro handle it for you.
-- Form 9465, Installment Agreement Request
-- Form 1040-V, Payment Voucher
-- Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return
-- Official Payments Corporation
Here's a big incentive for not waiting until the last minute next year: TechBargains.com's Tax Preparation Survey results found that those who wait until the last days or file for an extension, pay nearly double the amount of those who file in January and February.
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