Peter Dazeley
April 18 officially marks the end of tax season and if you are a big procrastinator, you might be rushing to pull all your tax documents together to file in time. Don’t panic. You can always file an extension to submit your tax return information at a later date. Just hand in Form 4868 with the Internal Revenue Service’s (IRS) Free File tool, which would extend your deadline to Oct. 17. To determine your eligibility, all you need to do is estimate your tax liability on the form, but be prepared to start making payments if you do owe Uncle Sam cash.
Filing for an extension might save you a few headaches later on down the road if you aren’t able to submit your taxes by the federal deadline. Submitting an incomplete or inaccurate tax return can lead to penalties or audits from the IRS, which will delay your refund, and this year, the IRS is already facing one of the biggest backlogs in history due to the pandemic. According to ABC News, at the end of the filing season in 2021, the agency had nearly 35. 3 million returns waiting to be processed. Why you may ask? The IRS relies on its staff to process each and every last return, and with record low staff numbers at the moment you might be waiting longer than the standard 21-day window to receive your refund.
Here are a few tips to keep in mind to avoid delays and those pesky late fees.
File before the tax deadline
Try to get those tax documents in by April 18 to avoid late fees. Missing the federal tax deadline can put you at risk of getting hit with a 5 percent late fee, that unfortunately gets tacked on to your unpaid balance per month. However, if you file for an extension by the due date, you can avoid the 5 percent fee.
Make sure you have all your forms
Make sure you have all the forms you need to do your taxes or for your CPAs to do the work for you. While the most common tax forms include W2s, which you typically receive from your employer, or the 1099-NEC for contract work, there are other forms you may need to submit to the IRS. Did you receive any unemployment income last year? Don’t forget to report Form 1099-G. You’ll also need this form if you’ve received payments on the following:
- State or local income tax refunds, credits, or offsets.
- Reemployment trade adjustment assistance (RTAA) payments.
- Taxable grants.
- Agricultural payments.
Pro tip! Make sure to have these two letters handy: Letter 6419 if you received Child Tax Credit payments or Letter 6475 to report stimulus payments.
Don’t forget to report your investment income
Are you an active investor in the stock market? Make sure to submit your 1099-B form to report capital gains and losses. There’s also the 1099 DIV form, which applies if you received dividends or made distributions last year.
“There is a common misconception that if a client didn’t physically receive payment from their investment, then it is not taxable,” Ryan Marshall, a CFP and partner at ELA Financial Group in Wyckoff, New Jersey told CNBC News. Always check your account as some documents may appear later on down the line.
You might be eligible for a tax write-off if you include a 1098 form for mortgage interest payments or 5498-SA for health savings contributions.
Retirement contributions must be reported
You can report individual retirement account contributions using Form 5498. For nondeductible IRA contributions, don’t forget to turn in Form 8606. This is commonly used to verify contributions for a Roth conversion, a tactic that allows you to bypass the income limits for Roth IRA deposits. It’s also required if you’ve made distributions from a traditional, SEP, or SIMPLE IRA account.
You might be wondering, what’s the difference between a deductible and a nondeductible IRA contribution? A deductible IRA can lower your tax bill by allowing you to deduct your contributions on your tax return during filing season. If you make contributions to a nondeductible IRA with after-tax dollars, you cannot deduct contributions on your tax return.
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