Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
The 10 million, including Governor Mitt Romney, and me, are part of the one percent. We are on extension for our 2011 tax return. Are you? Should you be? Is this a problem?
Filing an extension does not increase your risk of audit. In fact, it may increase your chances of less tax.
Why less tax?
If your only tax document is a W-2, you can file as soon as you receive it. There’s nothing else to be gained by waiting until the filing deadline.
However, paperwork may have been delayed if you’ve bought a new home, or had medical expenses, or if you were self-employed. Other issues may have been receiving the year-end paperwork if you are an S-Corporation shareholder, are an owner or investor in an LLC or partnership, or are a beneficiary of an estate or trust. You may have to wait before making a financial decision to contribute to a retirement plan, or for a correction to some forms you received like from your broker (1099-B), attorney on sale of property (1099-S), or company you performed some work for during the year (1099-Misc).
If you file before receiving the correct information, your tax computation may be too high. And if the information is not correct, you will have to file an amended tax return — and this means not only an additional tax preparation fee, but a physical review of your amended return by the IRS, instead of an electronic scan.
As an aside, Republican Vice-Presidential candidate Paul Ryan had to file an amended 2011 tax return to report trust income (form 1041) from the passing of his mother-in-law, which was probably received late.
The additional six months to file after April 15, until the middle of October, is only to file the paperwork — it is not an additional time to pay the tax. If you owe, share the problem with the IRS.
Can’t Pay? Your Options Are:
- Installment Agreement: An Installment Agreement is an option for those who cannot pay their entire tax bill by the due date. The IRS has streamlined agreements, which can stretch the tax payments over months and even years.
- Offer in Compromise: An Offer in Compromise is an agreement between a taxpayer and the IRS, which settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS has recently made it easier to qualify for an Offer in Compromise.
- Penalty Relief: The IRS has implemented new penalty relief for the unemployed and self-employed on failure to pay penalties, which is one of the biggest factors a financially distressed taxpayer faces on a tax bill.
Make Your Tax Appointment Now
During “tax season,” which is now through April 15, tax preparers concentrate only on taxes. For eight days a week, the normal day is 15 to 18 hours. After that, life gets normal — time with the family, continuing educational courses, TV, a BBQ. Now, however, it’s crunch time. October 15 is the deadline.
If you didn’t have all of your material, an extension before April 15 was no problem. Now, however, after October 15, you will be filing your return late. It’s not a problem if you are due a refund, but if you have a balance due, you are in store for additional interest and penalties. If you wait too long to gather your tax materials, there may not be time to complete your return.
This is September, so preparers have to complete the sales tax forms for the business clients through the 20th; and everybody takes off for the Jewish holidays — three days in September, four in early October. Then there are the payroll tax forms, which are prepared in October for businesses. There really is very little time for tax returns. Don’t wait any longer.
Have a good week.
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.