The decision whether to amend tax returns or not should be reached upon assessment of a number of factors aimed at evading more trouble with the IRS. If you have to amend more than one tax return, ensure that you amend each year independently using different Form 1040Xs. Each of the amended returns then, has to be mailed in separate envelopes to the IRS campuses in your respective area of residence.
There is a possibility that the amended return will be audited by the IRS. The number of audited returns is however, low unlike the assumption that all amended returns are examined. The possibilities are however, higher compared to the original returns. Another crucial fact is that the refunds can be applied to estimated taxes. The IRS will definitely scrutinize amended returns requesting for a reasonable amount of refunds. Try applying all or a fraction of your refund to the current year’s tax.
An understanding of the special statute of limitations and their rules is important. It usually takes the IRS three years to audit a tax return from the time of filing. This however, doesn’t mean that filing an amended tax return would restart that three-year statute of limitations. In case the amended return indicates a tax influx, and is submitted within 60 days prior to expiry of the three year statute, the IRS takes 60 days to assess the return from the day it is received. If the IRS fails to review the return within the 60 days, you can count your blessings.
Some individuals amend returns just before the expiration of the statute. Remember that an amended return that fails to report net increase in taxes is not eligible for any extension of the statute of limitations.
Taxpayers are always worried of the harsh IRS penalties and interests. It therefore, calls for caution because if the amended return shows that you owe more than what was owed originally and paid, you will have to deal with resulting interest and possible penalties. The IRS charges interest on all tax not paid by the due date of the original return, regardless of the extensions. If you fail to include the interest on the return, the IRS will do the math for you and send a bill your way or send a notice for any penalties which you can either pay or contest.
Dealing with amended tax returns can be hectic and tricky and should never be taken lightly. All in all, the accuracy of the original return is paramount.
No one looks forward to an IRS tax audit; even a mere mention of the topic makes many taxpayers uncomfortable even if they have nothing to worry about. Audits are in most cases the makings of taxpayers who either fail to conform to tax rules or try to cheat Uncle Sam, either deliberately or unconsciously. Whenever you realize that you cannot meet the IRS’s April tax filing deadline, there is always the possibility for an extension to evade harsh IRS penalties and interests.
The main reason you should consider an extension is to seek additional time to file accurately. This is best achieved with the help of a tax professional. Please note that returns are usually filed under penalties of perjury. As much as you are allowed to correct your returns in case the IRS identifies some mistakes on them, they are likely to be accorded a closer review thereafter. You are therefore, much safer if file as accurately as possible to avoid the unnecessary and daunting back-and-forth exchange with the tax man.
Some taxpayers believe that requesting for an extension is a sure way to beckon an audit. Many citizens still don’t understand what triggers and what doesn’t increase a taxpayer’s vulnerability to tax audits. According to the IRS, the number of taxpayers filing for extensions has been on the rise in the past few years, and it is very unlikely that a decrease will be reported anytime in the near future.
Applying for an extension is simple; you can mail a Form 4868 or ask your tax pro to do it for you. You can as well, use commercial apps like Turbo Tax or use the IRS website and pay via e-pay. The website also contains a guide on how to successfully apply for the extension as well as pay for the same. Originally, you could be accorded an extra four months plus an additional two if you presented a justifiable reason. This has since, been dropped and you are not required to provide any reasons to be accorded the extensions. The six-month extension to file your return is granted automatically you file for an extension.
However, don’t get excited yet: the extension to file doesn’t extend the tax payment period. This means that you have to pay by the Tax Day and request for the extra time to accurately file the return. Consider talking to a tax professional if you cannot pay by the deadline to choose an alternative payment method and stay away from the interests and penalties from the IRS.
Tax preparation is a cause of many taxpayers’ sleepless nights, which should never be the case. You can make your tax-filing experience a piece of cake by following these tips as outlined by the IRS:
No Procrastination: You risk overlooking valuable tax saving sources and at the same time, increase the risks of errors on your returns if you rush to meet the tax return filing deadline. As tempting as it might be, fight the urge to delay and avoid procrastination.
Be Informed, Visit the IRS Website: The best place to acquire tax information is the IRS website, which in 2011 alone, received over 322 million visits. Your first stop on the site should be “1040 Central” for the latest news and answers to inquiries about tax filing.
Utilize Free File: You can prepare and E-file your tax returns for free with Free File, available at the IRS website. Taxpayers who made $57,000 or less in the filing year are eligible for the free application offered via private-public partnership with manufacturers. Those who made more than $57,000 and who are okay preparing their own tax returns can utilize the Free File Fillable forms.
Try IRS E-File: E-file is not only the most common tax return filing method, but also the safest and easiest. You can make the April deadline by filing immediately and paying later or combine e-file with direct deposit; your refunds can be issued in as less as 10 days.
Never Panic if You Cannot Pay: There are times when you cannot pay by the due date, don’t panic. Simply file the returns and pay whatever you can afford to evade the tough penalties and interests. You can also talk to the IRS about an Installment Agreement plan via the Online Payment Agreement application.
Pay on Time but Apply for an Extension to File: Those who cannot meet the April deadline automatically have an additional six months to file, up to mid-October. This extension must be postmarked by the April deadline date and doesn’t extend the payment period as well. You must have paid at least 90% of the overall tax due by the April deadline or risk penalties. The extension can be granted through Free File or Form 4868- Application for Automatic Extension of Time to File U.S. Individual Income Tax Return that can be downloaded from the IRS website. This form can also be mailed to you if you order at 800-TAX-FORM (800-829-3676). The mailed forms take at least ten days to be delivered.
Every year, individuals have nine months (if a request for an extension is filed) while partnerships and corporations usually have a little over eight months to gather their previous year’s tax data and start filing their tax returns. This period can be assumed to be sufficient to enable taxpayers have their taxes in order. Unfortunately, the reality is far from the truth that procrastination is widespread, which has some serious tax consequences and affects many taxpayers.
Assuming that you have all the necessary documents except one by the April deadline, you are free to file for an extension if the missing document can be obtained after the April deadline. Many tax representatives will remind you about the missing document, which can be obtained in some way or another. Eventually, even with all these available options, one may end up missing the extended October tax filing deadline, which means only one thing: trouble with the IRS.
To ensure that taxpayers file their taxes in time, the IRS charges a 25% late-filing penalty, a 5% late-payment penalty, plus about 5% interest. If you have $1,000 due, you end up paying an extra $300, a figure that would have been as low as a $25 underpayment penalty had you filed in April, even if you overestimated your deductions and expenses, and underpaid your estimated tax payment in April.
It is natural that many people tend to take some tasks more seriously at the eleventh hour. Filing of taxes is a complex process that requires sufficient time to verify and ensure that all the information has been filled in the tax return forms appropriately. Last minute filing will mean that you won’t have sufficient time to review them and find out if there are any tax credits you are entitled to but didn’t claim. Eventually, this will shortchange you a lot of money that could have gone to other important things in your life.
The IRS sends out notices to tax defaulters and if they don’t hear from a taxpayer; they communicate with the state and prepare substitute tax returns for the taxpayer, also known as an SFR (Substitute for Return). Your balance due is computed as a single filer without any dependents, free from any deductions and exclusions, according to the information contained on your W-2s and 1099s. As a result, you end up with the highest tax possible and if you don’t come forward, your bank account can be seized or your wages garnished.
It doesn’t matter whether you never owe and always expect tax refunds. Your refunds will be gone for good if you fail to file a claim for over three years. Escape the errors and terrors of late filing of taxes by eliminating procrastination; keep an eye on the calendar and always file on time.
The IRS provides a wide range of options that a taxpayer can use to pay their taxes. The option you use will depend on the amount of taxes that are due, your financial situation, and your preferences. These options are:
- Withholding – If you are an employee, then the primary way that you pay income tax is through withholdings. Your employer withholds a portion of your pay every paycheck and remits the funds to the IRS under payroll taxes. To determine the amount of taxes to withhold, your employer uses the W-4 form that you filled when getting employed. If too much or too little taxes are being withheld, you can fill out a new Form W-4 with the updated information and submit the same to your employer.
- Installment Tax – For those who are self employed, you will need to pay installment taxes within the year. Once you have prepared your final taxes, you can then pay the balance taxes by the tax deadline. If your installment taxes are significantly lower than the actual taxes due, you may be penalized for the underpayment.
- Pay Taxes by Tax Deadline – By April of every year, each qualifying taxpayer is expected to prepare their returns based on their previous year financial numbers. If on preparing the returns you discover that you owe taxes, then you will need to pay these taxes by the April tax deadline. You can pay such due taxes by writing a check to the IRS and attaching it to a paper return. There are also bank transfer options available to facilitate the payment of such taxes.
- Pay by Credit Card or Other Credit Option – If you do not have available cash and want to clear the balance before the deadline, you may pay using your credit card. The IRS has subcontracted various private institutions to facilitate the collection of taxes through credit cards. You can use any of these companies to pay by credit card. You can also seek other credit facilities such as payday loans or bank loan to raise funds to clear the due taxes.
- Request for the 120 Day Extension – If you do not have funds by the tax deadline but you will be getting finances to pay the due taxes within 120 days from the deadline, you can call the IRS and request for an extension. The IRS is at liberty to make such an extension on case by case basis and no penalties are charged in such a case. However, the IRS will charge interest for the days delayed.
- Online Payment Agreement (OPA) – If your tax dues are large and you want to pay them over a period of time, you can request the IRS to set up an installment payment plan. If you owe below $25,000, then you can set up an Online Payment Agreement which is guaranteed and you can set it up on the IRS website or by calling the toll free IRS number. However, installments will need to be paid off within 5 years. Interest and penalties for late payments will also be charged back to the due taxes. This installment plan does not come with any financial disclosures to the IRS and you get to determine the amount to pay monthly as long as the taxes are paid within the 5 year limit.
- IRS Repayment Plan – If you owe over $25,000, then you will need to apply for an installment repayment plan. To do this, you will need to file Form 433F, “Collection Information Statement Form” and provide your financial details such as your assets, bank statements, and other personal details. The information makes it easy for the IRS to place a lien against your assets. Once you apply for the installment plan, the IRS determines the amount to be paid per month based on your financial situation.
- Financial Hardship Options – If you are in a financial hardship and are not able to pay the full amount of taxes due, you can seek for relief options. An Offer in Compromise is a waiver of part of the due taxes for a taxpayer who is in a financial hardship. The offer is granted at the discretion of the IRS upon application by the taxpayer. Another option available for someone who is unable to pay the taxes is a Partial Payment Installment Agreement.
The tax deadline is drawing closer and this is a good time to get the required tax documentation in order. If you have a tax file and have been filing all related documents, this should be an easy and straightforward process. However, if all your documentation is not in order, this is also a good time to review your records, collect your tax documentation, and in cases where some are missing, get replacement copies.
The W-2 Forms
The W-2 forms are sent by your employer at the beginning of the preceding year. Employers are given until January 31st to send the W-2 forms and therefore, you should be getting the form at least by the first week of February. If you are unable to get a W-2 form from your employer for whatever reason, you can request for a W-2 copy from the IRS. You will need to file Form 4506-T to request for a copy of the form. If the IRS does not have the form, you may use your pay-stubs as your source document for your employment income. Form W-2G is given for gambling wins that exceed a given threshold. You will need to include such gambling wins as part of your income and pay the appropriate taxes.
The 1099 Forms
Form 1099 is given for various types of incomes. Once again, the issuer of the form is required to do so by end of January for incomes made in the previous year. Form 1099DIV is given against any dividends that you earn and it is issued by stockbrokers and fund managers. Form1099INT is given against interests that your investments earned over the year. Form 1099S is issued by a real estate agent against the sale of a property. Form 1099G is issued by state authorities against any distributions made by the state. Form 1099 MISC is issued for business to business transactions. Those who receive the 1099MISC include independent contractors, consultants and freelancer workers. For the forms 1099DIV, 1099INT and 1099S, you can easily get a replacement by downloading a statement from the institution’s website or by calling the company and requesting for a replacement if you find that you are missing one. Most states also have a procedure of getting a replacement of the Form 1099G. If you do not receive a Form 1099 MISC or have misplaced one, you can simply report the incomes received without using the form.
The Form K-1 is yet another income related form and it is issued to shareholders of S-Type Corporations, partnerships and other business models. It indicated the share of profit that a shareholder or partner gets in a given year. The issuers of K-1 forms are allowed to extend the time of sending out the forms up to September 15th and therefore, those who do not receive the form on time can either file estimates and later make an amendment or file for an extension to prepare their returns. It is advisable to file for an extension to October as opposed to using estimates, as filing an amendment return increases your chances of being audited.
Filing your tax documentation cannot be overemphasized. Having incomplete records can easily lead to wrong tax returns, IRS audits, and tax liabilities that could have easily been avoided. However, the responsibility of proper recording does not end with having a proper physical file where you place all tax documentation. For various reasons, it is important that you go beyond hard copy filing and think of a remote storage space where you can back-up these records. One of these reasons is disasters.
Effects of Disasters
In the recent past, the U.S has been hit by its share of disasters. Ranging from hurricanes, floods, fires and earthquakes, each disaster has had its toll on lives as well as property. One other area that these disasters have affected is on physical records. Many people have lost valuable records from these disasters including tax documentations. Although the government does give citizens of areas that have been hit by a disaster extra time to prepare and file returns, at the end of the day, you are still required to come up with the right records and numbers to file your return. The confusion and workload that befalls taxpayers who had no remote tax documentation back-up can be really gruesome. Even besides major disasters, home fires, misplacing documents when moving to new homes or offices, or simply forgetting where you placed your documents, can have devastating effects on your tax preparation process. To avoid such problems, it is best to keep your records in electronic format and back them up in a remote place. Thanks to the advancement of technology, this does not need to be hard or expensive.
Simple Remote Back-up Options
Backing up your tax documentation or any other important documentation will only require you to scan the documents and then upload them to a storage space available remotely through the internet.
- Buy Scanner and Store Records Electronically – Personal use document scanners are significantly cheap and you can get yourself a scanner just for a few dollars. You can also choose to purchase a scanner that comes with other functionality such as printing, faxing, and photocopying just to have some extra utility from the equipment. Once you purchase the scanner, you can then scan the tax documents into your computer for storage and backing-up.
- Use Tax Software to Store Receipts – Most major tax software have provisions that allow you to upload the documents directly into the software and attribute such documents to a given entry on the software. This is ideal for easier sorting and filing.
- Moving Documents to Remote Store – If you wish to store your records directly onto a private storage back-up space, then you will need to identify such a space. The storage spaces range from free space such as keeping the documents on your remote email box to paid storage space that charges a reasonably low rate. Considerations when choosing a storage space include reliability of the space providers to serve you for as long as you wish, privacy and security, and whether you can store the documents in easy-to-maintain folder files. It is advisable to use a commercial space rather than a free space as for the paid storage space, the provider is bound to provide you the services as agreed.
The 2012 tax season started as early as January 4th and taxpayers can now file their taxes and receive their refunds. For 2012, there are more days available before tax deadline as April 15th falls on a Sunday and the 16th is a holiday observed in D.C. Therefore, the tax deadline for 2012 will fall on April17th. Furthermore, 2012 is a leap year thus, giving taxpayers an extra day in February. For those who choose to file for an extension, they will have until October15th to file their returns.
As the timetable for the 2012 tax season is set, taxpayers now need to decide on the time to file their tax returns. The taxpayer can file early between January to March, wait for the tax deadline season, or file for an extension. Below are some of the advantages and disadvantages of each option:
- Filing Early – There are various advantages of filing early. Firstly, you avoid the last minute rush to beat the deadline that may lead to anxiety, stress, and errors. Filing early enables you to take your time and properly review your returns before submitting. When you file early, you also get to easily access a tax preparer who will give you more time as the workload is much less then. You also get to receive your refund check earlier and you can thus, use such funds to meet your needs. However, when you file early, the IRS may not have released some forms or information that may be important for filing.
- Filing at Deadline – Many taxpayers choose to file within the last three weeks of the tax season. Many of these taxpayers do so out of procrastination. However, others deliberately choose to wait until tax time to file returns. Filing at tax season enables you to catch the urgency as everyone is dashing to beat the deadline. The media is also alive with tax tips and reminders of the deadline and this can also work to keep you in the tax mood. However, filing close to the deadline may have you filing in a hurry and this can lead to errors that can cost you penalties and interest as well as foregoing due tax reliefs.
- Extension – Much fewer taxpayers opt to file for an extension. Even with filing for an extension, the IRS will still require you to pay taxes due by the April 15th deadline and you must therefore, ensure that your taxes are settled by then. This is a limitation since you may discover that you owe the taxman when you prepare the taxes later in the year and therefore, you will have to pay due taxes, interest, and penalties for late payment. On the flip side, filing for an extension can also give you extra time to prepare your returns with less pressure, and you can also access tax preparers much more easily.
Deadlines spell doom to a majority of people. April 15th always seems to spring up by surprise, but there is a simple way to extend this intimidating deadline for tax returns. If you are unable to complete the returns by that deadline, you can file Form 4868, which is basically an application for automatic extension with the IRS.
Filing for an extension implies asking for more time to complete the tax forms. One should not infer that IRS has granted them more time to pay any taxes that are due. Interest and a possible penalty are due on the outstanding amount if the extension is taken up.
Whether a penalty is due depends on the amount of taxes owed as of April 15th. The basic kinds of penalties include:
Failure to file penalty: If an extension request is not filed by April 16th, a failure to file fine, running at a rate of 5% of the balance due per month (up to a maximum of 25% of the taxes owed) becomes due.
Failure to pay penalty: If an extension request is filed and you owe more than 10% of the final tax liability or $1,000, whichever greater, expect to be pounded with a failure to pay penalty, running at a rate of 0.5% per month (in addition to any interest due on the balance).
Interest: Any amounts unpaid after April 15th are chargeable for interest at the rate of 8%.
Unable to Pay by April 15th?
If the amount due is so low that you won’t be subject to a penalty, you may file an extension by April 15th and pay the amount due by October 15th , when you submit your tax forms.
If the amount owed in taxes is too much to be paid off by October 15th, one may file the paperwork to enter into an installment agreement with the IRS by completing Form 9465 and attaching it to the front of the federal income tax return. On Form 9465, one should indicate how much they can afford to pay per month and by what date.
The IRS will normally charge a fee of between $52 and $105 to every taxpayer who enters into an installment arrangement. More so, the IRS will charge interest at the prevailing federal rate in addition to a reduced “failure to pay” penalty of 0.25% per month on the outstanding balance.
Additional incentive for self-employed individuals:
The self employed stand to benefit from filing for an extension as well. This is because they have until the due date of their tax return, including extensions, to fund their retirement accounts for the year. If an individual has not set up a retirement plan yet, a SEP IRA can be established as late as the extended due date of the tax return or October 15th.
By filing Form 4868 with the IRS, one gets an additional six months to fund their retirement plan and deduct the contribution made on their prior year’s return.
Note that an extension does not give extra time to fund Roth IRAs, Traditional IRAs, and Coverdell Education Savings Accounts. The due date for these is April 15.
Always submit your paperwork on time:
Timing counts. The “failure to pay” penalty is much smaller than the “failure to file” fine. This obviously serves show that all tax returns and extension requests should be filed on a timely basis, whether or not one can meet the full amount of tax due at the time. Filing on time saves money, time, and frustration.