What if you missed your tax filing deadline?

What if you missed your tax filing deadline?

Hello, it is April 24, and a whole week has gone by after the Tax Day on April 17^th.

You must have filed your tax return, or requested an extension at the least. Even if not, do not press the panic button, the IRS is not going to pull you away and penalize you, still it would like to see your return filed, as soon as possible.

After April 17, all your appeals for a tax filing extension would be rejected by the IRS – but do not fret, there are other options you can explore, namely:

a. If you have a refund due, you will not be penalized for late filing, but if you overhaul the 3-year window before you forfeit your refund, you lose your refund. So be sure to file before April 15, 2015. Else, your refund will be converted into a simple donation for the US Treasury J

b. Else, you will have to eke out a late filing penalty - 5 percent of your unpaid balance per month, or part of a month, up to a maximum of 25 percent.

c. If you didn’t pay additional taxes owed by April 17, whether you filed an extension or not, a late payment penalty of one-half of one percent (0.5%) will also accrue each month or part of a month until the balance is paid in full.

If you have a valid reason for failing to file on time, the IRS may consider reduction of penalty charges. Remember, even those who have died are entitled to file a return, and their survivors could end up paying penalties for late filing!

If there’s a legitimate reason you miss the deadline such as a divorce, illness, death in the family, or a natural disaster, you can sometimes get those fees reversed.

When you get a past-due notice, just send a certified letter to the address it came from saying you are “requesting abatement.”  Then explain why you couldn’t file in time.

If you DON’T have a good reason for being late, just file as soon as possible to avoid that extra 4.5% penalty.

How does it work?

Example: Let's say you didn't file your return or extension by the April deadline, and you still owe the IRS an additional $2,000.

Best-case scenario: You file your return in late April of 2012 and submit your payment for $2,000. You would owe an additional $100 for filing late ($2,000 x .05) plus another $10 for late payment ($2,000 x .005) for a total penalty of $110.

(Had you filed your extension by the deadline, your total penalty would only be $10. It pays to file an extension!)

Worst-case scenario: You file your 2011 return in April of 2017, 5 years late, and submit your payment for $2,000. You would owe an additional $500 for filing late ($2,000 x the maximum .25) plus another $500 for late payment ($2,000 x the maximum .25), for a total penalty of $1,000.

Any circumstances while allow me to file late?

If you are out of the country on the April filing deadline, you are allowed two extra months to file your return and pay the amount due, without needing to request an extension.

You're out of the country if:

• You live outside of the United States or Puerto Rico and your main place of work is outside of the United States or Puerto Rico; or
• You are in military or naval service outside of the United States or Puerto Rico.
•  

If you need more time, you can request four additional months by filing an extension along with paying any taxes you owe.

Other situations

• If you have not received Form W-2, or you believe your Form W-2 is incorrect, contact the IRS for a resolution.
• If you cannot pay the amount of taxes owed, you should file your tax return anyway before the deadline and pay as much as you can to avoid additional penalties. The IRS will send you a bill or notice for the balance due. In some cases the IRS can offer alternative account resolutions if a taxpayer cannot pay in full with the return.
• If you are self-employed, you must file returns reporting self-employment income within three years of the original filing deadline in order to receive Social Security credits toward your retirement.

If you need to pay additional tax, ensure filing of your return at the earliest. The penalties for not filing are much higher than the penalties for not paying, and the longer you wait, the worse it gets. At least file your return on time, it can always be amended later!

Tax Deduction Myths!

The tax laws listed out in full glory on the taxpedias might at most times seem too overwhelming for us to understand and interpret. So, there is bound to be a lot of confusion on what deductions to claim on your income tax return. A few commonly misinterpreted / misrepresented deductions are listed below for your clarity:

1. You cannot claim interest deduction on your personal credit card


Whenever you make personal charges to your credit card such as personal recreation, eating out etc, in general, any expense related to running your day-to-day life, the interest is not deductible.

A number of years ago, consumer-interest deductions were allowed, with the belief that it would enhance consumer spending and hence improve economy. However, it was changed on the basis of fear that people may begin to over spend and over borrow.

Hence, if you are self-employed, the best bet to eliminate credit card related confusion is to have separate cards earmarked for your business and personal life.


2. You cannot claim deductions on expenses towards your work clothes / interview suit


You cannot claim deductions on getting smartened up for an interview / work environment demands, but expenses towards smartening up your resume and looking out for jobs with the help of an employment service agency can be deducted.

3. You cannot deduct commuting costs when moving from your place to the office


This cannot be done, as the time you spend commuting to work is considered personal and on the presumption that you have chosen your place of living in relation to your workplace.

However, if you are self-employed / work from home, your cost of commuting from your residence to any place on work-related business (meetings et al).


If you are planning to claim any of the above, sit down with your accountant / tax professional and ensure you have everything noted down properly and in compliance with the IRS regulations.

Keep track of your tax return!

You may prepare your tax return yourself, use a tax software, take the help of a CPA or a tax professional or may be you outsource it. However, my question is, do you save a copy of your return?

Most of us do not, and that is a very serious mistake. Why would you need to save a copy of your tax return? The chances are,

Ø      You may have to respond to an IRS notice

Ø      You  may want to make changes to the prepared return

Ø      You may be applying for a home loan

Ø      You may want to plan in advance for your tax and finances.

For all the above cited reasons, one may think taxpayers will be careful around their returns. But alas, the situation has only gone from bad to worse these days.

Suppose you have prepared your own return and filed it online – please take care to do at least any of the following:

1. Print a copy of the return
2. Save the file or
3. Scan the return document (if not the source documents)

Some of you might argue saying that you source your returns to a paid preparer, and the preparer will be available to give you a fresh copy if need be. But, in case the preparer experiences a PC crash and loses the files or has quit the business, you will be helpless.

The Federal Tax office can provide you with a copy of the return, but you will have to shell out a few extra dollars and be prepared to wait for a few weeks. IRS Form 4506 is the form to apply for a copy / transcript of your tax return.

It is in fill-in mode, allowing you to enter information while the form is displayed by an Adobe Acrobat 4.0 product and then print the completed form out. Fill-in forms give you a cleaner crisper printout for your records and for faxing. Of course, take due care to print it out and save your copy!

 You can also avail of a tax account transcript / return transcript from the IRS– however, the waiting time involved is sure to dent the original purpose of requiring the return.

Many people do NOT need actual copies of their returns and can instead request a tax return transcript. Transcripts are free, but copies of the return cost $23 each. In addition, transcripts are usually received in two weeks, but copies take four to six weeks.

Hence, please take care to save a copy of your return always, and store it for a minimum period of 5 years from the time of filing. A bit of preparedness always helps!

Along side, maintaining a digital copy of your supporting documents is also a best practice and will come in handy some day.