Last-Minute Tax Filing Tips

Tax Tips & Calculators  Tax News  Last-Minute Tax Filing Tips

By Robert Steere, Toolkit Staff Writer

"Taxes—Of life's two certainties, the only one for which you can get an automatic extension."—Author Unknown.

But—though it's true that you can get an automatic extension—the clock ticks down toward the April 18 (for 2011) federal income tax filing deadline. And, like death, your taxes can't be put off forever. Now is the best time to overcome your anxieties and frustrations, gather your records, sit down at your desk or at the kitchen table with a cup of coffee, your computer, and your tax forms and instructions, and get busy!

And to help you in this dutiful effort, here are some useful tips and reminders to consider as you step boldly forward through this year's tax filing season toward a triumphant April 18 filing.

Consider using online tax prep services. Last-minute tax law changes enacted at the end of 2010 make this tax season more complicated than ever. Using online tax return preparation services can help eliminate much of the confusion you might otherwise experience. More and more taxpayers are using these services to walk them through the process of preparing and then e-filing their returns. It may be a more pleasant route to take than plodding through on your own with paper forms, lengthy instructions, pencils and erasers!

Consider e-filing. If you haven't already done so, consider e-filing this tax season. Most taxpayers are already following this useful advice. The IRS recently announced that taxpayers are continuing to e-file in greater numbers than ever before. According to the IRS, more than 100 million individual tax returns (more than two-thirds of the total) were filed electronically last year. Most of the increase in e-filing has been driven by record numbers of taxpayers using their home computers to prepare and e-file their income tax returns.

Use Free File, if eligible. Filing electronically may also be the most cost-effective option for many taxpayers. Seventy percent of American taxpayers are eligible to file their returns electronically for no cost by using the IRS's Free File program because their adjusted earned income is $58,000 or less. Free File is available at the IRS website by clicking first on "Free File."

Choose direct deposit for your refund. In addition to e-filing, more taxpayers are also choosing to have their tax refunds directly deposited into a bank account by electronic transfer. IRS directly deposited approximately 75 percent of all individual tax refunds processed during 2009. It's simple, and it results in a speedier refund.

Double-check your work. Common, yet avoidable, tax return preparation errors draw unwanted attention from the IRS and cause unwanted delays in the processing of your tax return and your tax refund. Such mistakes often result in a taxpayer failing to pay the correct amount of tax due. But with a little extra attention to detail, many of these (dare I say) careless mistakes that cause needless hassle can be eliminated.

To avoid needless mistakes, carefully follow the instructions of the online service or read all the instructions to the tax forms and schedules as you prepare the return, and then double-check the entire return before filing. The use of online services and e-filing may help to reduce some errors and speed refunds, but they won'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, including the following:

• choosing the wrong filing status
• failing to include or using incorrect Social Security numbers
• using incorrect forms and schedules
• failing to sign and date returns
• claiming ineligible dependents
• failing to file for the earned income tax credit (EITC)
• improperly claiming the EITC
• failing to pay and report domestic payroll taxes
• failing to report taxable income
• treating employees as independent contractors
• filing no return when a refund is due
• failing to check liability for the alternative minimum tax
• improperly computing qualified dividends and capital gains
• failing to properly calculate taxable Social Security benefits
• mailing a return to the wrong address

Increase last-minute tax savings by saving. Generally, once the calendar year ends, so does your ability to change the tax consequences for that tax year. However, if you have the cash to do it, there is one easy way to reduce your tax bill right up to the April 18 filing deadline—to invest in a traditional individual retirement account (IRA).

If you haven't yet made contributions to an IRA for the 2010 tax year, you can contribute up to $5,000 ($6,000 if you were at least age 50 during 2010) to an IRA. When a husband and wife file jointly, the limit applies separately to each, so that as much as $10,000 can be contributed ($12,000 if both are 50 or over).

Provided certain requirements are met, the immediate benefit of making an IRA contribution by April 18 this year is that it can reduce your taxable income for 2010 by the amount contributed (up to the annual limit). For example, a single taxpayer with $76,000 in taxable income (25 percent tax bracket) contributing $5,000 to an IRA would save $1,250 in taxes. Using the same $76,000 income amount, a married couple filing jointly (25 percent tax bracket) and contributing $10,000 would save $2,500 from their final 2010 tax bill.

Whether IRA contributions are deductible depends on the taxpayer's income level and whether the taxpayer is covered by another pension plan at work. A person must have earned income (i.e., wages, salaries, commissions and other sources of earned income) equal to or greater than the amount of any contributions made. If a taxpayer or his or her spouse is covered under another retirement plan, if their combined income is over certain limits, they may not be able to deduct the full amount of contributions allowed. If neither is covered under a retirement plan, then 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 18.

As our unknown author noted above, you can get an automatic extension of six months to file an individual income tax return. Keep in mind, though, that the due date for the tax payment is not negotiable, and 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 18, 2011, for most calendar year taxpayers). There are several ways to file this form, such as e-filing through your personal computer or a tax professional, by mailing a paper Form 4868, by paying some or all of your estimated income tax due (by phone or Internet) using a credit card, 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.

Finally, take a moment to reflect. If you are filling out your tax forms and wondering where all your money went, hold on to that thought. Once tax season is over, you can spend some time working on a financial planning strategy that can best maximize your earnings and tax deductions.

Good luck, and happy filing season!

For more help with the many tax changes that may affect you for the 2010 tax filing season and beyond, take a look at the Tax Guide 2012.

Posted April 6, 2010.