Filing your taxes is about as fun as getting a root canal — only there’s no Novocain to numb the pain of sending that check, if you owe one. If you’re due a refund… what are you waiting for?
Then again, procrastinator, we don’t blame you. In fact, you’re hardly alone. About 20% of tax payers wait until the last two weeks to file their tax return, according to the Internal Revenue Service. About 10 million people actually couldn’t get their act together by April 15 last year and requested an extension from the IRS. (This year, the IRS expects the number of extension requests to be roughly the same. We’ll tell you how to file one in a bit.)
Wide-spread as it is, though, tax-time procrastination is no excuse for having a last-minute panic attack. After all, the days of sorting through hundreds of receipts stacked into shoe boxes and sweating over a 1040 print-out with a dull pencil and rusty calculator are long gone.
Today, virtually anyone could prepare and file their tax return electronically. Last year, 95 million, or 66% of all tax returns, were delivered via e-file, according to the IRS. And if your adjusted gross income was $57,000 or less in 2009, you actually qualify for preparing and e-filing your return for free. (Just be sure to go through the IRS web site to receive this service.)
If you’re still using the old receipt-in-a-shoebox system to track your tax-deductible expenses, though, we’ll tell you this much: get on with the times. With online banking and the help of Mint.com, you can track your expenses (even cash ones) and tag the tax-deductible ones throughout the year. In other words, with a little time and effort once a day or week year-round, getting your act together come tax time will be almost effortless.
In the meantime, here’s what you can do now if you haven’t yet filed your 2009 tax return:
Don’t forget to sign your return
You’d think, Duh. But apparently, this is a common tax-filing error – and filing last-minute is only likely to lead to others that are easily avoidable. Among them: choosing the wrong filing status (or choosing more than one), mailing your return to the wrong place or messing up your bank’s routing or checking account number if you’ve selected to get your refund direct-deposited. For details on how to avoid such mistakes, check out this list, kindly provided by the IRS.
Maximize tax credits and deductions
Why leave money on the table that’s rightfully yours? Make sure to claim all credits and deductions for which you qualify. Obviously, using the services of a tax preparer (or tax-preparation software) can go a long way here, but again, you can – and should — also take advantage of the IRS’s free-file service if you qualify.
Several tax write offs made available in the Stimulus bill passed last year can be easily overlooked because they’re relatively new, says Bob Meighan, a Certified Public Accountant (CPA) and Vice President at TurboTax. (TurboTax is owned by Intuit, which also owns Mint.com.) Those include the homebuyer credit, some education credits, a deduction for teachers, the deduction for sales tax on automobiles and the Making Work Pay tax credit, worth up to $400 for individual filers and up to $800 for married couples.
If you use money-management software like Mint.com, sifting through tax-deductible expenses is easy, especially if you’ve been categorizing them properly throughout the year. And even if you haven’t, you could use the various transaction categories to bring up specific kinds of expenses and take stock of what’s tax deductible and what isn’t. Going forward, it will certainly help to do some of that work year-round. Whenever you make a tax-deductible purchase and once it posts on your Mint account, click on the transaction, then “Edit Details” and check the box next to “tax related.” Come tax time next year, simply type “Tax Related” in the search box under the Transactions tab, and you’ll get a list of all tagged expenses. A few extra minutes once a day or week throughout the year: a lot of saved time and strife come April 15.
File for an Extension
Don’t think you can get your act together in the next couple of days? Not to worry: you can ask Uncle Sam for some extra time by filing Form 4868. This is an application for automatic extension, so as long as you put it in the mail or e-file it by April 15, you’ll get until October 15 to file your tax return.
On the flip side, as the IRS is sure to point out, this is an extension to file, but not to pay. If you’re due a refund, that doesn’t concern you. But if you owe Uncle Sam, you will need to estimate your tax liability at the time you file the extension – and send a check or schedule a payment plan. If you fail to do so, the IRS will charge you interest on what you owe — and a penalty, to boot. “That’s the Catch 22,” Meighan says. “To prepare your extension you’ve got to have a pretty good idea if you owe money.” How do you do that without completing a tax return? There is a way, actually. Turbo Tax Free Tax Tips helps you estimate your taxes by answering several simple questions about your family and financial situation. Unfair as it may seem, if you underestimate your tax liability, the IRS will impose a penalty and interest on the amount you still owe.