DON’T BE IN SUCH A HURRY – BUT DON’T WAIT TILL THE LAST MINUTE

 

As the tax filing season begins here is some good advice, taken from my book THE JOY OF AVOIDING TAXES -

You should not rush to be among the first taxpayers of the year to have your taxes done. Do not give or send your tax preparer your ‘stuff’, or attempt to prepare your own returns, until you have received all the forms and information needed to complete the returns! That means every W-2, every 1099, and every K-1 and all the cost basis information on the sale of investments.

Over the years I have had several experiences where a client came in very early in the season and had his or her return prepared, only to receive another Form 1099 in the mail the day after the finished returns were sent to his or her “uncles”.

If you have a brokerage account there is an excellent chance that you will receive at least one, if not two, corrected “Consolidated 1099 Statements” to report taxable dividends, interest and gross proceeds after the initial statement arrives in late January.  The final corrected 1099 may not arrive until mid-March.

On the other hand -

Many taxpayers who expect to owe their “uncles” wait until the very last minute to get their tax information together to prepare their return. Even if you think you will owe taxes you should have the return prepared early, once you have all the necessary information in hand. You don’t have to actually file the returns and pay the tax until mid-April. But by having your 1040 prepared early you will know exactly how much you will owe and have time to come up with the money, instead of running around trying to juggle funds days before the deadline. Hey, you might even be surprised to find that you will be getting a refund!

Also consider the workload of your tax preparer. I had a strict long-standing rule that all returns that are not literally in my hands, with all the necessary information, by mid-March will be automatically extended!

And one more thing -

If you owe money to your Uncle Sam it is very, very important that you get your tax return in the mail by the initial mid-April deadline -or get your automatic extension application in the mail by the April deadline and the finished return in the mail by the mid-October deadline - even if you cannot pay all or any of the tax due on the return!  Send what you can with the return – but if you can’t send anything be sure to mail the return!  The same applies to your state income tax returns.

The IRS penalty for paying late is .5% (one half of one percent) of the tax due per month, or part thereof, until paid.  The penalty for filing late is 5% per month – 10 times as much!  States also have increased penalties for late filing.      

TTFN