Don't Delay Tackling Your Return
The IRS concedes it can't process certain 2006 returns just yet. February 3 is your green light this year. But don't delay: The three revived tax breaks causing problems still can save you money.
By Kevin McCormally, Editorial Director, Kiplinger.com
January 9, 2007
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It's not a happy New Year for the IRS.
The agency admits that -- thanks to last minute changes to the law by a foot-dragging Congress -- it's simply not ready to process millions of tax returns that some Americans are already ready to file. And that means you if you plan to deduct state sales taxes, write off college tuition or are a teacher who wants the benefit of the special $250 deduction for classroom expenses.
So should you delay filing a return this year? Definitely not. In fact, you'll be making a mistake if you let IRS's problems persuade you to put off tackling your 2006 return. Affected taxpayers filing electronically can't get their returns into the system until February 3 anyway. It's affected taxpayers filing on paper by mail who also may want to wait until then.
If you're like most taxpayers, you want to be ready to file as soon as possible so you can tell the government how much money it owes you. About 70% of all filers get tax refunds, and your return serves as a request for that money. It's estimated that the average refund this year will be around $2,200. (Having too much withheld? Try our withholding calculator.)
So, get cracking as soon as you have your W-2, 1099s and any other documents you need. Then pull the trigger on February 3.
Electronic filers. If you plan to file electronically -- which is the quickest, most error-free route to your refund -- chances are good that the IRS is ready for your return. The agency says only a small percentage of returns filed this month are affected by retroactive tax law changes that have IRS employees scrambling to reprogram the agency's computers. But the IRS won't accept ANY electronic files before February 3, so the third-party firm that transfers data to the IRS will either bounce your return back to you or hold on to it until the day after Groundhog Day.
You still should prepare your return as soon as you have the necessary information. Transmitting your return as soon as the IRS will accept it will put you near the front of the tax-refund queue.
Paper filers. Those who file on paper will need to follow special instructions to take advantage of the last-minute tax-savers approved by Congress. The IRS had already sent the tax forms and instructions to the printer before Congress acted in December to change some of the rules for 2006. (You'll find the special instructions at the end of this story.)
The big question: Should you drop your return in the mail as soon as you complete it? Or should you wait until late January or early February? On this point, we'd advise waiting.
The IRS says it won't process returns affected by the changes until February 3. If your return gets there before that date, and IRS processing centers accept it, once it's discovered that there's an entry on the form that the computers aren't ready to handle, your return will be kicked out of the system and will "sit in a pile" until it can be dealt with, says an IRS spokesperson. Rather than risk a snafu caused by this suspended animation, you're better off waiting to mail your return. Just don't dally much longer after February 3.
Trouble-making tax breaks
Congress created this mess by waiting until December to extend a series of tax breaks that had expired at the end of 2005. There was little suspense over whether the lawmakers would resurrect the tax breaks. The only question was when.