It’s mid-April and you haven’t filed your income tax returns yet?
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,” said Joseph DeGennaro, tax director for Doeren Mayhew in Troy, Michigan. He noted that 40 percent 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 south for the winter wait until they get home 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, an accountant in Southfield, Michigan. He estimated that up to 35 percent of returns that his firm prepares are completed in April. He noted that about 15 percent of his clients seek extensions every year.
Here are some tips if you’ve yet to complete that tax return:
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.
St. Onge said that in some cases you could underestimate the value of what you donated. See sites such as 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.
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, St. Onge said. Get donation receipts.
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 irs.gov/eservices if you sense a problem.
But remember, if you don’t pay the taxes you owe by April 18, you’ll pay penalties and interest.
That way, you avoid steep penalties for filing late, Hunt said.
In general, he said, the IRS penalty for late filing is 5 percent a month up to a total of 25 percent of the unpaid tax. However, there is a minimum penalty that ends up being the smaller of $205 or 100 percent of the unpaid tax if the return is more than 60 days late. Important point: If there is a refund or no balance due, the penalties will not apply.
The penalty for late payment is less than for late filing – 0.5 percent a month, up to 25 percent of the unpaid tax. If an extension is filed and 90 percent 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.
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 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 irs.gov/payments.
An Offer in Compromise program exists for tax filers who have severe financial problems. 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 taxpayers 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.
In some cases, consumers have been taken by unscrupulous outfits that charge high upfront fees but aren’t able to help consumers get such a settlement.
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