Tax Tips for Last-Minute Filers
How to file for an extension (and whether you even need to), getting in a few more deductions and other key advice as April 18 (yes, the 18th) approaches.
Tax Day falls on April 18 this year, or April 19 if you live in Massachusetts or Maine. (Why not April 15 as usual? It’s complicated.) So if you’re still pulling together all of your Form 1099s, enjoy the reprieve. But remember, if you, like most taxpayers, are due a refund, the IRS doesn’t care when you file; they’re happy to keep your money for you.
Not that you should tarry: Delaying gives crooks more time to file a phony tax return in your name (here’s more about that risk).
There are a few other instances where late filing could hurt you, even if you don’t owe the government money. If you converted a traditional individual retirement account into a Roth IRA in 2015, you have until October 17 to undo the transaction and avoid paying taxes on it. But to qualify, you must file your 2015 tax return by April 18 or request an extension.
In addition, you should file a tax return or request an extension if you received an advanced premium tax credit to help pay for health insurance purchased through a state exchange, says Barbara Weltman, a spokeswoman for J.K. Lasser’s Your Income Tax 2016. You must also fill out Form 8962, which will be used to reconcile the amount of household income you projected when you applied for the subsidy with your actual income. If you don’t file your return (or request an exemption), you could be denied a subsidy during the next open enrollment period, Weltman says.
An extension will give you until October 17 to file your tax return. Make the request (you don’t have to give a reason) on Form 4868, or do it online. But remember, if you owe the IRS, filing an extension won’t give you more time to pay — just more time to file.
If you can’t come up with the money, you should still file a tax return or a request for an extension by April 18. Otherwise, you’ll owe stiff failure-to-file penalties, along with underpayment penalties and interest on the balance. If you have a large tax bill, consider setting up an installment plan with the IRS, which will allow you to make monthly payments. Taxpayers who owe $50,000 or less can apply online at www.irs.gov/Individuals/Online-Payment-Agreement-Application. You’ll have to pay a set-up fee of $120 (or $52 if you arrange for automatic debit from your bank account).
Money left on the table
Are you determined to hunker down and file your tax return by April 18? Fine, but make sure that in your haste, you don’t make mistakes that could cost you money. The tax code has become so byzantine that even people with relatively straightforward returns could overlook valuable tax breaks—especially when they’re trying to beat the clock. At this late date, it’s not worth your time trying to run down deductions that you’re unlikely to qualify for, such as the one for out-of-pocket medical expenses. The deduction is limited to expenses that exceed 10% of your adjusted gross income (7.5% if you were 65 or older on Dec. 31, 2015), so unless you had modest income and very large medical bills, you probably won’t qualify for this deduction.
There are, however, lower-hanging tax breaks that could lower your tax bill, even at this late date. Commonly overlooked tax breaks include:
Charitable contributions. You probably know that you can deduct cash contributions to charity, as long as you itemize. But don’t overlook other tax breaks for acts of kindness. You can deduct out-of-pocket costs for charitable activities, such as the cost of ingredients for your church’s soup kitchen. If you travel for charity, you can deduct 14 cents per mile, plus parking and tolls. And don’t overlook noncash contributions, either. You can deduct the fair market value of donated clothing and other items.
Student loan interest. You can deduct up to $2,500 in interest on your student loans, even if you don’t itemize. You can deduct the maximum if your modified adjusted gross income is less than $65,000 (less than $130,000 if you’re married and file jointly). You can claim a reduced amount if your modified AGI is between $65,000 and $80,000 ($130,000 and $160,000 if you’re married). You can claim this deduction even if your parents made your loan payments. If you paid more than $600 in interest on student loans last year, you should have received a Form 1098-E from your lender. If you paid less than that amount, or you didn’t receive a form, your loan service should be able to tell you how much interest you paid.
Home office deduction. In years past, self-employed taxpayers who wanted to claim this tax break had to fill out a lengthy form listing the actual expenses of operating their home office. In 2013, though, the IRS introduced a streamlined method that makes it much easier to claim this deduction, even at this late date. You can deduct $5 for every square foot of your home that’s used for work, up to a maximum of 300 square feet, or $1,500. Just keep in mind that to claim this deduction, the office must be used regularly and exclusively for business. It’s still a red flag to IRS auditors; keep good records.
Mistakes to avoid
If you ever handed in a sloppy homework assignment, you probably got a note from your teacher admonishing you to check your work. The same rule applies to your tax return. In your haste to complete your return, be careful not to make these goofs:
Wrong Social Security numbers. Make sure the SSNs entered for everyone on your return match the names that appear on their Social Security cards. Don’t forget to include SSNs for all dependents.
Bad account numbers. If you arrange for direct deposit of your refund, triple-check account numbers. Otherwise, your refund could land in someone else’s account. Good luck recovering your money if that happens.
No signature. Be sure you sign and date your tax return. If you’re filing jointly, your spouse must sign it, too.