By Paul N. Gada, CCH Toolkit Staff Writer
With another April 17 federal income tax deadline fast approaching, filing season anxiety should be at a frenzied pitch. Whatever you do, though, don't panic!
Like the famous train in the children's story, imagine yourself as the little taxpayer that could. Stop procrastinating, resign yourself to losing a few hours of your time, gather your records, sit down in front of your tax preparation materials, and don't get up until you are done (OK, you can get more coffee or go to the bathroom, but that's it!).
To help speed you on your merry way, here are three more useful tips for a brighter 2007 tax filing season.
Make a list and check it at least twice. Common errors made by individuals when preparing their tax returns are a surefire way to draw unwanted attention from the IRS. These mistakes may result in the taxpayers' failure to pay their correct tax liabilities and in delays in processing returns and refunds. Put another way, many of these mistakes are just plain "open-palm-applied-to-forehead" errors that cause needless hassles.
To prevent making easily avoidable mistakes, taxpayers should always carefully read all instructions to the tax forms and schedules and review the entire return before filing. The use of e-filing may help to reduce some errors and speed refunds, but it doesn't help much if you input the wrong data.
The IRS regularly highlights the most common mistakes made by individuals while preparing their federal tax returns. The errors targeted by the IRS (and, therefore, the ones you should pay close attention to) are:
Enjoy last minute tax savings. Generally, once the calendar year ends, so does the ability to change the outcome for the tax year. However, there is one commonly available way to lower your tax bill all the way up to the April 15 filing deadline: invest in a traditional individual retirement account (IRA).
For 2005, the most that you can contribute to an IRA is $4,000 ($4,500 if you were at least age 50 during 2005). When both a husband and wife file jointly, the limit applies separately to each, so that as much as $8,000 can be contributed ($9,000 if both are 50 or over).
Provided certain requirements are met, the immediate benefit of making an IRA contribution is that it reduces your taxable income for the amount contributed (up to the annual limit). For example, a single taxpayer with $57,000 in taxable income contributing $4,000 to an IRA would save $1,000 in taxes. Using the same $57,000 income amount, a married couple filing jointly and contributing $8,000 would save $1,200 from their final 2005 tax bill.
Whether IRA contributions are deductible depends on the individual's (or, if married, the couple's) income level and whether or not the individual is covered by another pension plan at work. There is an earned income requirement and any contributions must be from compensation (i.e., wages, salaries, commissions and other sources of earned income). If neither the individual nor spouse is covered under another retirement plan, they may take full advantage of the tax deduction for the amount contributed, regardless of their income level, as long as sufficient compensation is earned to cover the contribution.
Don't be late. Remember that for calendar year taxpayers, the deadline for your income tax returns and schedules is April 17. Please note that this year you get two extra days to file because April 15 falls on a Saturday. Also, taxpayers who send their returns to the Andover Service Center in Massachusetts, including residents of the District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New York and Vermont, have until April 18, 2006, to file the extension request, since April 17 is a holiday in Massachusetts.
Although the due date itself is not negotiable, starting this year you can get an automatic extension of six months to file an individual income tax return. Keep in mind, though, that the automatic filing extension is not an extension of time to pay the tax due on the return.
To get an automatic six-month filing extension, file IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, by the due date of your income tax return (April 17, 2006, for most calendar year taxpayers). There are several ways to file this form, such as filing by phone (at 1-888-796-1074), through your personal computer, by mailing a paper Form 4868, or by contacting your tax advisor.
Those filing Form 4868 must include an estimate of taxes due for the year. You are not required to make an estimated tax payment in order to file Form 4868. However, any taxes owed after the regular due date of your tax return are subject to interest and possible penalty charges.
Taxpayers affected by Hurricane Katrina who still cannot file their 2005 income tax return by their postponed due date of August 28, 2006, may request the six-month automatic extension in addition to the postponement already granted to them. Those qualifying for extra time include taxpayers who lived outside of the areas that received the automatic postponement, as well as disaster relief workers still in the affected area.
The additional six-month extension, if applied for, would extend the filing due date for Hurricane Katrina taxpayers to February 28, 2007. Hurricane Katrina taxpayers should apply for the additional six-month extension by filing 2005 Form 4868, and writing "Hurricane Katrina" in red on the top of the extension request form.
Good luck and happy filing season!
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Added to the news on April 13, 2006.
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