Nobody likes being nagged, but I’m going to risk reader displeasure by reminding everyone that there are hefty financial consequences if you owe income taxes and do not file a return on time – or at least request a filing extension. Ordinarily, the federal income tax deadline is April 15; but this year the IRS has granted a reprieve until April 18. Nevertheless, here’s why procrastinating is a bad idea:
If your 2010 federal tax return (or extension request) isn’t postmarked or electronically filed by April 18, the penalty on any taxes you owe increases dramatically. Generally, you’ll have to pay an additional 5 percent for each full or partial month you’re late, plus interest, up to a maximum penalty of 25 percent. However, if you file your return or request an extension on time, the penalty drops to 0.5 percent per month, plus interest.
Here’s how it can add up: Say you owe $2,000 in federal income tax. If you haven’t requested an extension, you would be charged an additional $100 (5 percent) for each month you’re late. Had you filed for an extension, the penalty would drop to only $10 a month (0.5 percent).
Contact the IRS early if you won’t be able to pay on time. They may even waive the penalty, depending on your circumstances. Call 800-829-1040 or visit www.irs.gov for more information.
Another way to avoid a penalty: The IRS accepts payment by credit or debit card, with a small convenience fee that is tax deductible if you itemize expenses. Just be sure to pay off your card balance within a few months, or the interest accrued might exceed the penalty.
A few additional tax-filing tips:
• Find out what’s new. Because the tax code changes every year, scan the IRS’ Tax Information for Individuals website for updates before diving in.
• Make sure your return is accurate.
Common tax-filing errors include:
• Omitting or filling in incorrect/illegible taxpayer ID numbers, filing status, dependent names and Social Security numbers
• Documentation not attached (W-2s, supplemental forms, etc.)
• Omitting income items
• Tax return not signed and dated
• Information entered on the wrong lines
• Child tax credit incorrectly calculated
• Math errors. (Tax software does the math, but you’re still responsible for entering correct numbers initially.)
Ask for help. If calculating your own taxes is too confusing or time-consuming, consider using tax-completion software like Turbo Tax, or hire a tax professional. A sharp preparer could save you a bundle by finding hidden credits or deductions.
If cost is an issue, several free options are available to seniors, military and low- and middle-income taxpayers:
• The IRS sponsors the Volunteer Income Tax Assistance Program (VITA) and Tax Counseling for the Elderly (TCE). Read Free Tax Preparation on the IRS website for information.
• Military personnel and their families worldwide can get free assistance through a program offered through VITA. Check with your base for details.
Jason Alderman directs Visa’s financial education programs.