Last-Minute Tax Tips

Since today is D-Day for income tax filing, I’ve pulled together a few recent tips that the IRS published.  These tips cover a few of the areas that you may find interesting, including how to get a six-month extension for your filing (but not for payment of tax), errors to avoid as you complete your tax return, how to make IRA contributions, and tips for the self-employed at tax time.  This is a much longer post than I normally write, but I think it has a lot of very good and very timely information that will be useful today.

The actual text of these tips are listed below, with the reference number of each tip.

 

IRS Newswire IR-2013-38

Can’t File by April 15? Use Free File to Get a Six-Month Extension; E-Pay and Payment Agreement Options Available to People Who Owe Tax

WASHINGTON – The Internal Revenue Service today reminded taxpayers that quick and easy solutions are available if they can’t file their returns on time, and they can even request relief online.

The IRS says don’t panic.  Tax-filing extensions are available to taxpayers who need more time to finish their returns.  Remember, this is an extension of time to file; not an extension of time to pay.  However, taxpayers who are having trouble paying what they owe may qualify for payment plans and other relief.

Either way, taxpayers will avoid stiff penalties if they file either a regular income tax return or a request for a tax-filing extension by this year’s April 15 deadline.  Taxpayers should file, even if they can’t pay the full amount due.  Here are further details on the options available.

More Time to File

People who haven’t finished filling out their return can get an automatic six-month extension.  The fastest and easiest way to get the extra time is through the Free File link on IRS.gov.  In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an automatic tax-filing extension on form 4868.

Filing this form gives taxpayers until Oct. 15 to file a return.  To get the extension, taxpayers must estimate their tax liability on this form and should also pay any amount due.

By properly filing this form, a taxpayer will avoid the late-filing penalty, normally five percent per month based on the unpaid balance, that applies to returns filed after the deadline.  In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15.  The current interest rate is three percent per year, compounded daily, and the late-payment penalty is normally 0.5 percent per month.

Besides Free File, taxpayers can choose to request an extension through a paid tax preparer, using tax-preparation software or by filing a paper Form 4868, available on IRS.gov.  Of the nearly 10.7 million extension forms received by the IRS last year, almost 5.8 million were filed electronically.

Some taxpayers get more time to file without having to ask for it.  These include:

• Taxpayers abroad.  US citizens and resident aliens who live and work abroad, as well as members of the military on duty outside the US, have until June 17 to file.  Tax payments are still due April 15.
• Members of the military and others serving in Afghanistan or combat zone localities.  Typically, taxpayers can wait until at least 180 days after they leave the combat zone to file returns and pay any taxes due.  For details, see Extensions of Deadlines in Publication 3, Armed Forces Tax Guide.
• People affected by certain tornadoes, severe storms, floods and other recent natural disasters.  Currently, parts of Mississippi are covered by a federal disaster declaration, and affected individuals and businesses in these areas have until April 30 to file and pay.

Easy Ways to E-Pay

Taxpayers with a balance due now have several quick and easy ways to electronically pay what they owe.  They include:

• Electronic Federal Tax Payment System (EFTPS).  This free service gives taxpayers a safe and convenient way to pay individual and business taxes by phone or online.  To enroll or for more information, call 800-316-6541 or visit www.eftps.gov.
• Electronic funds withdrawal.  E-file and e-pay in a single step.
• Credit or debit card.  Both paper and electronic filers can pay their taxes by phone or online through any of several authorized credit and debit card processors.  Though the IRS does not charge a fee for this service, the card processors do.  For taxpayers who itemize their deductions, these convenience fees can be claimed on Schedule A Line 23.

Taxpayers who choose to pay by check or money order should make the payment out to the “United States Treasury”.  Write “2012 Form 1040”, name, address, daytime phone number and Social Security number on the front of the check or money order.  To help insure that the payment is credited promptly, also enclose a Form 1040-V payment voucher.

More Time to Pay

Taxpayers who have finished their returns should file by the regular April 15 deadline, even if they can’t pay the full amount due.  In many cases, those struggling with unpaid taxes qualify for one of several relief programs, including the following:

• Most people can set up a payment agreement with the IRS on line in a matter of minutes.  Those who owe $50,000 or less in combined tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment agreement for up to 72 months.  Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS.  With the Online Payment Agreement, no paperwork is required, there is no need to call, write or visit the IRS and qualified taxpayers can avoid the filing of a Notice of Federal Tax Lien if one was not previously filed.  Alternatively, taxpayers can request a payment agreement by filing Form 9465.  This form can be downloaded from IRS.gov and mailed along with a tax return, bill or notice.
• Some struggling taxpayers may qualify for an offer-in-compromise.  This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.  The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.  To help determine eligibility, use the Offer In Compromise Pre-Qualifier, a free online tool available on IRS.gov.

 

IRS Tax Tip 2013-52

Five Things to Know if You Need More Time to File

The April 15 tax-filing deadline is fast approaching.  Some taxpayers may find that they need more time to file their tax returns.  If you need extra time, you can get an automatic six-month extension from the IRS.

Here are five important things you need to know about filing an extension:

1. Extra time fo file is not extra time to pay.  You may request an extension of time to file your federal tax return to get an extra six months to file, until Oct. 15.  Although an extension will give you an extra six months to get your tax return to the IRS, it does not extend the time you have to pay any tax you owe.  You will owe interest on any amount not paid by the April 15 deadline.  You may also owe a penalty for failing to pay on time.
2. File on time even if you can’t pay.  If you complete your return but you can’t pay the full amount due, do not request an extension.  File your return on time and pay as much as you can.  You should pay the balance as soon as possible to minimize penalty and interest charges.  If you need more time to pay, you can apply for a payment plan using the Online Payment Agreement tool on IRS.gov.  You can also send Form 9465,Installment Agreement Request, with your return.  If you are unable to make payments because of a financial hardship, the IRS will work with you.  Call the IRS at 800-829-1040 to discuss your options.
3. Use Free File to request an extension.  Everyone can use IRS Free File to e-file their extension request.  Free File is available exclusively through the IRS.gov website.  You must e-file the request by midnight on April 15.  If you e-file your extension request, the IRS will acknowledge receipt of your request.
4. Use Form 4868 if you file a paper form.  You can request an extension of time to file by submitting Form 4868, Application for Automatic Extension of Time to File US Individual Income Tax Return.  You must submit this form to the IRS by April 15.  Form 4868 is available on IRS.gov.
5. Electronic funds withdrawal.  If you e-file an extension request, you can also pay any balance due by authorizing an electronic funds withdrawal from a checking or savings account.  To do this you will need your bank routing and account numbers.

 

IRS Tax Tip 2013-51

Eight Tax-Time Errors to Avoid

If you make a mistake on your tax return, it usually takes the IRS longer to process it.  The IRS may have to contact you about that mistake before your return is processed. This will delay the receipt of your tax refund.

The IRS reminds filers that e-filing their tax return greatly lowers the chance of errors.  In fact, taxpayers are about twenty times more likely to make a mistake on their return if they file a paper return instead of e-filing their return.

Here are eight common errors to avoid.

1. Wrong or missing Social Security numbers.  Be sure you enter SSNs for yourself and others on your tax return exactly as they are on the Social Security cards.
2. Names wrong or misspelled.  Be sure you enter names of all individuals on your tax return exactly as they are on their Social Security cards.
3. Filing status errors.  Choose the right filing status.  There are five filing statuses:  Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) With Dependent Child.  See Publication 501, Exemptions, Standard Deduction and Filing Information, to help you choose the right one.  E-filing your tax return will also help you choose the right filing status.
4. Math mistakes.  If you file a paper tax return, double check the math.  If you e-file, the software does the math for you.  For example, if your Social Security benefits are taxable, check to ensure you figured the taxable portion correctly.
5. Errors in figuring credits, deductions.  Take your time and read the instructions in your tax booklet carefully.  Many filers make mistakes figuring their Earned Income Tax Credit, Child and Dependent Care Credit and the standard deduction.  For example, if you are age 65 or older or blind check to make sure you claim the correct, larger standard deduction amount.
6. Wrong bank account numbers.  Direct deposit is the fast, easy and safe way to receive your tax refund.  Make sure you enter your bank routing and account numbers correctly.
7. Forms not signed, dated.  An unsigned tax return is like an unsigned check – it’s invalid.  Remember both spouses must sign a joint return.
8. Electronic signature errors.  If you e-file your tax return, you will sign the return electronically using a Personal Identification Number.  For Security purposes, the software will ask you to enter the Adjusted Gross Income from your originally-filed 2011 federal tax return.  Do not use the AGI amount from an amended 2011 return or an AGI provided to you if the IRS corrected your return.  You may also use last year’s PIN if you e-filed last year and remember your PIN.

 

IRS Tax Tip 2013-50

Top Ten Tips on Making IRA Contributions

The IRS has 10 important tips for you about setting aside money for your retirement in an Individual Retirement Arrangement.

1. You must be under age 70½ at the end of the tax year in order to contribute to a traditional IRA.
2. You must have taxable compensation to contribute to an IRA.  This includes income from wages, salaries, tips, commissions and bonuses.  It also includes net income from self-employment.  If you file a joint return, generally only one spouse needs to have taxable compensation.
3. You can contribute to your traditional IRA at any time during the year.  You must make all contributions by the de date for filing your tax return.  This due date does not include extensions.  For most people this means you must contribute for 2012 by April 15, 2013.  If you contribute between Jan. 1 and April 15, you should contact your IRA plan sponsor to make sure they apply it to the right year.
4. For 2012, the most you can contribute to your IRA is the smaller of either your taxable compensation for the year or $5,000.  If you were 50 or older at the end of 2012 the maximum amount increases to $6,000.
5. Generally, you will not pay income tax on the funds in your traditional IRA until you begin taking distributions from it.
6. You may be able to deduct some or all of your contributions to your traditional IRA.
7. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure the amount of your contributions that you can deduct.
8. You may also qualify for the Savers Credit, formally known as the Retirement Savings Contributions Credit.  The credit can reduce your taxes up to $1,000 (up to $2,000 if filing jointly).  Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the Saver’s Credit.
9. You must file either Form 1040A or Form 1040 to deduct your IRA contribution or to claim the Saver’s Credit.
10. See Publication 590, Individual Retirement Arrangements, for more about IRA contributions.

 

IRS Tax Tip 2013-46

Top Six Tax Tips for the Self-Employed

When your are self-employed, it typically means you work for yourself, as an independent contractor, or own your own business.  Here are six key points the IRS would like you to know about self-employment and self-employment taxes:

1. Self-employment income can include pay that you receive for part-time work you do out of your home.  This could include income you earn in addition to your regular job.
2. Self-employed individuals file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with their Form 1040.
3. If you are self-employed, you generally have to pay self-employment tax as well as income tax.  Self-employment ax includes Social Security and Medicare taxes.  You figure this tax using Schedule SE, Self-Employment tax.
4. If you are self-employed you may have to make estimated tax payments.  People typically make estimated tax payments to pay taxes on income that is not subject to withholding.  If you do not make estimated tax payments, you may have to pay a penalty when you file your income tax return.  The underpayment of estimated tax penalty applies if you do not pay enough taxes during the year.
5. When you file your tax return, you can deduct some business expenses for the costs you paid to run your trade or business.  You can deduct most business expenses in full, but some costs must be ‘capitalized’.  This means you can deduct a portion of the expense each year over a period of years.
6. You may deduct only the costs that are both ordinary and necessary.  An ordinary expense is one that is common and accepted in your industry.  A necessary expense is one that is helpful and appropriate for your trade or business.

For more information, visit the Small Business and Self-Employed Tax Center on the IRS website.  There are three IRS publications that will also help you.  See Publications 334, Tax Guide for Small Business; 535, Business Expenses and 505, Tax Withholding and Estimated Tax.  All tax forms and publications are available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).