Tax Season: Take Two
The April 17 deadline may be long past, but millions who asked for more time still have to file, and millions more need to file again to correct errors on their original returns.
By Kevin McCormally, Editorial Director, Kiplinger.com
May 29, 2007
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It ain't over till it's over.
Yogi Berra's brilliant insight from his days with the New York Mets may be ringing in the ears of millions of American taxpayers who still haven't settled with the IRS for 2006.
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The IRS says that by the April 17 tax deadline, more than 10 million taxpayers threw in a towel rather than a 1040. Instead, they filed Form 4868 asking for an extra six months to file. That's 750,000 more procrastinators than last year. If you're among that group, your tax return is due October 15.
But filing sooner rather than later will get the IRS monkey off your back. If you have a refund coming, getting your return to the IRS will serve as a request for getting your money back; if you owe, the sooner you file, the less interest you'll owe. (The current rate is 8%.)
Whether you filed your 4868 extension request on paper or electronically, you can file your 2006 return electronically up to October 15. After that, you'll face a late-filing penalty and have to file on paper via postal mail.
Don't pass up a refund
In addition to the 10 million taxpayers who dutifully asked for more time, as many as 2 million more Americans who should have filed returns simply didn't. We're not talking about tax cheats. We're talking about the small army of workers who fail to file each year even though the IRS owes them money. In 2003, for example, about 1.8 million folks from whom the IRS had received tax payments (from withholding on paychecks, for example) failed to file on time to request a tax refund.
Those who didn't' file by this past April 17 forfeited their right to the money. It's likely that a similar number who were owed refunds for 2004 failed to file that year. They have until next April 15 to ask for their money back. If you or someone you know failed to file a 2006 return, remember this: there's no penalty for late filing if the IRS owes you money ... except for a delay in getting your money back.
Get next year's refund now
Although plenty failed to file and claim refunds, many more got fat checks from the IRS this year. The IRS reports that the average tax refund set a new record. As of May 4, the IRS has processed 127,959,000 returns, and about 96.3 million -- or 75% -- called for refunds. The total amount sent back to taxpayers was $217 billion, for an average check of $2,255. Nearly 60 million of those refunds were directly deposited into the taxpayers' accounts (including IRAs) at banks, brokerages and mutual funds. This year, for the first time, taxpayers could split their refund and have parts of it direct deposited to as many as three accounts.
If you are among the millions who got a fat refund, you may want to file a new W-4 with your employer to reduce withholding from your paychecks. We've created an easy-to-use calculator to show you how many extra "allowances" you should probably claim and how much you can add to your paychecks by doing so.
Do you need to make amends?
More taxpayers than ever before who filed on time probably need to file again to fix mistakes on their original return.
The IRS estimates that as many as 30 million taxpayers who deserved the $30 to $60 refund of the federal telephone tax failed to claim it.
Fortunately, it's not too late to claim your money. You can file an amended return using Form 1040X to claim it now. That form can be intimidating and the potential $30 to $60 windfall might not be a life-changing amount. But the form is relatively simple to fill out to claim the telephone tax refund. In fact, as evidence that the IRS expected a lot of taxpayers to goof on this point, the 1040X includes a special line for setting things straight. Although you can use tax prep software such as TurboTax to prepare your amended return, you must file on paper. The IRS doesn't allow e-filing of the 1040X.
Some investors may need to file amended returns, too, if they received corrected 1099 information returns from their brokers or mutual funds after filing their original return. Corrected 1099s often reflect minor changes in income or slight shifts in the amount of dividends that qualify for the special 15% tax rates. Because the tax-rate schedules used by taxpayers with taxable income of $100,000 or less move in $50 income increments, a small change might not affect your tax liability.
If you received a corrected 1099 with a significant change, however, you'll need to file an amended return to fix the error. Remember this: The IRS got a copy of the amended 1099, too.
