(Newswire.net — October 14, 2014) — According to IRS statistics, over a quarter of the 13 million taxpayers who have filed for a tax extension this year have yet to submit their tax returns. As a taxpayer, there are a few things you need to do to avoid missing the tax deadline:
*File your tax extension (this should have been done on or before April 15th)
*Make a rough estimate of how much you might owe, paid with your extension.
*File your return before October 15th, 2014
Unless you want to owe unnecessary penalties and interest, here are 5 important things you need to keep in mind before the filing deadline expires.
Mistake #1 – Letting the Internal Revenue Service file your Tax Return for you and Eliminating Your Deductions!
Did you know that if you don’t file your return, then the IRS can do this?
If there’s one thing you must avoid, it’s letting the IRS file for you. This will eventually happen if you do nothing, and you probably will not like the results. What happens is that they will base your tax bill on whatever information it has, such as the income reported on your W-2.
Remember, the Internal Revenue Service may not have any knowledge about the things that could lower your tax bill and increase any refund you might receive. This includes all the deductions you’re entitled to or what you paid for bonds, mutual funds, or stocks you sold last year.
Mistake #2 – Believing that you can simply file another tax extension.
Did you know that there are no additional extensions, unless you fall into a special category?
Unlike the April 15th deadline earlier this year, you can’t procrastinate any more. If you fail to file on time, expect to cough up some extra money to pay for your mistake. The only exception to this, current, is military members serving in a combat zone. So if you are reading this, it is highly unlikely this will apply to you.
Here’s what happens to the general population. The IRS will issue a failure-to-file notice to those who missed the deadline, and haven’t filed for an extension. This also means starting the clock for penalties and interest fees, which can damage your credit score and cause other problems, if you don’t pay your tax bill.
The Failure-To-File (FTF) penalty starts from 5% of your unpaid taxes per month, up to a max of 25%. Failure-To-pay (PTP) penalty goes from 0.5% of your tax bill per month, up to a max of 25%, plus the current interest rate of 3%. These will be further assessed – FTP may reduce FTF penalty.
You could have these penalties and interest adding up month by month if you miss filing on October 15, notes Phoenix CPA and tax professional, Randy J. Elder. If you’re expecting a refund, there’s no penalty for not filing, but the IRS won’t send your refund if you don’t file your taxes.
Mistake #3 – You don’t file your return because you aren’t sure how much you owe in taxes.
Did you know it’s better to guess with the IRS, than doing nothing at all?
If you can’t pay your entire bill, then give them your best estimate. In doing so, you’re letting the IRS know that you’re aware of the situation and you are trying to resolve it. After filing, you can even communicate with them to negotiate a payment plan, so you can pay your taxes in a timely fashion.
When requesting for an installment agreement, you need to complete Form 9465, and propose how much you can pay a month. If you establish a time frame to pay your tax bill, the IRS may allow it. Otherwise, Randy says, “The IRS will probably divide your outstanding tax balance by 72 months.” If you give them a reasonable offer, and they are likely to accept it.
Randy Elder, a licensed Certified Public Accountant since 1988, claims that “Installment agreements are automatic if you owe less than $50,000. You are required to make a payment with the installment agreement along with a fee, then the IRS will withdrawal an agreed upon amount each month on an agreed upon day. If you are only able to pay very little due a change in employment or illness, you may be able to have an Offer in Compromise accepted and reduce your tax liability significantly. This is what the ads on TV are referring to when they claim they lowered the amount owed to IRS. But you have a very low income for the offer to be accepted. Offer in Compromises are accepted about 13% of the time.”
Mistake #4 – Refusing Free Help from the IRS.
Are you aware the IRS actually offers free resources to help you pay your taxes on time?
Most people aren’t aware that those individuals who have an income of $58,000 or less, may take advantage of Internal Revenue Service’s Free File Program. It provides free federal tax prep and e-file for taxpayers, either through brand-name software or online fillable forms. People who earn higher incomes can use the free fillable forms on the IRS website.
Remember, however, you must still get your taxes filed by Oct 15th to avoid any penalties.
Mistake #5 – You don’t take advantage of this Tax Deduction “Loophole”!
Did you know the IRS doesn’t allow this tax strategy to be used this late in the game?
The deadline for opening an Individual Retirement Account (IRA) for 2013 was last April 15th, so you won’t be able to reduce your tax liability by funding it anymore. The Roth IRA deadline is also April 15th.
Roth IRA offers a valuable future tax break, which means a tax-free income in retirement, as long as you follow the rules. By re-characterizing the conversion, or switching back to a regular account, you’ll have a smaller taxable gain, and owe less in taxes.
Randy J. Elder further explains that, “If you’re a small business owner filing Schedule C, you can still make a contribution to your SEP IRA. The contribution must be made up until Oct 15th to be deducted on your 2013 return. Remember, everyone still has 6 months to open an IRA for 2014.”
Keep in mind that while an extension gives you extra time to file your return, an extension does not give you extra time to pay your taxes. So if you’ve made any of these mistakes this year, you now have at least six months to prevent them from happening again next year.
Randy advises that everyone should consult with their tax advisor before December 31st for tax planning ideas that can save you money on your 2014 returns. After December 31st, the planning opportunities are severely limited.