Haven't started your taxes yet? You're not alone. Here's some advice that will make procrastinating a bit less painful.
The deadline to file taxes is Tuesday, April 15. That’s just over three weeks away.
If you haven’t already filed, you’re not alone. The IRS says 20 to 25 percent of us are going to wait until the last two weeks.
Those who have already filed are probably the lucky souls getting a refund. Those who haven’t probably fall into one of two groups: They owe or they’re only able to get motivated by deadlines.
Either way, we’re here for you.
Let’s start with the following video we recently shot with some step-by-step advice. Check it out, then read on.
Now, let’s flesh out the advice offered in the video and add a little more. We’ll start with some good news.
If you’re getting a refund, you don’t have a deadline
It’s been drummed into our heads that the deadline for filing taxes is April 15. But that deadline applies only to those who owe. If you’re getting money back, the IRS doesn’t care when you file.
While it obviously doesn’t make sense to let Uncle Sam hold onto your refund interest-free, it’s nice to know that if you’re getting money back, April 15 is just another Tuesday.
But if you use this excuse, be right. Because if you end up owing after all, penalties and interest will make the eventual bill higher.
For those who do need to file, here’s the step-by-step:
Step 1: Get organized
Before you sit down to do your taxes, get your stuff together. Start by looking at last year’s return and make sure you have what you’ll need to put together this year’s, including W-2s, 1099s, receipts and statements.
If you didn’t receive a W-2 or 1099, don’t assume you got lucky and don’t have to report the income. Those furnishing these documents were supposed to mail them no later than Jan. 31. If you still haven’t received something, call the company responsible. If you don’t get immediate action, call the IRS at (800) 829-1040.
You can learn more about the process of getting missing documents here.
Step 2: See if you qualify for free help
If your annual income is $52,000 or less, you may qualify for free basic tax return preparation and e-filing from IRS-certified volunteers through the Volunteer Income Tax Assistance program, or VITA. There are thousands of VITA locations nationwide. Find the closest one by entering your five-digit ZIP code in the Locator Tool, or by calling (800) 906-9887.
But do it now. As you might imagine, the lines grow as the deadline looms.
There’s also Tax Counseling for the Elderly through AARP and other organizations to help people 60 and older prepare their taxes. To find the site nearest you, visit the AARP website and search by your address or county. You can also call a toll-free line at (888) 227-7669.
Like doing it yourself? If your income doesn’t exceed $58,000, you can prepare and e-file your federal return free through IRS Free File. And no matter what your income, you can file free by filling out online tax forms.
Step 3: Take a breath
As I said in the video above, while there’s a deadline involved, this isn’t a race and there’s no need for panic. Rushing means making mistakes or, worse yet, leaving money on the table by missing deductions you’re entitled to.
If you start running out of time, just file an extension. All you have to do is fill out this form — a 4868 — and you’ll buy yourself an extra six months. What you won’t buy, however, is a payment holiday. If you owe, you’ll need to pay by April 15.
And if you don’t have the money?
Step 4: File something
As I said, your extension is only for your tax return – not an extension to pay your taxes. So if you owe, you’re supposed to pay by April 15.
What if you don’t know what you owe? Don’t freak. Just do the best you can to estimate. As long as you guess within 90 percent of what you owe, you’ll pay interest on the unpaid portion, but you won’t get hit with penalties.
The biggest mistake you can make is not to file anything. Even if you don’t have a nickel to send in, go ahead and send in either an extension or a 1040. The reason? The IRS failure-to-file penalty is 5 percent per month of taxes due. That means every month you don’t file, you owe another 5 percent, until you max out at 25 percent. And the minimum penalty is $135.
But the failure-to-pay penalty is a 10th of that. It’s 0.5 percent a month.
And if you pay with an IRS installment plan, that cuts your penalty down to 0.25 percent monthly. If you owe $50,000 or less and don’t have any other problems with the IRS, approval is as automatic as the tax-filing extension.
You’ll pay $120 to set up the installment plan, but that’s reduced to $52 if you let the IRS take the money out of your bank account. You’ll still owe interest on the unpaid portion, but at least you’ll avoid stiffer penalties.
Bottom line? It’s easy to get caught up in the April 15 filing frenzy. But in contrast to deadlines like Christmas, anniversaries and term papers, this one is a bit more flexible.
So don’t stress. Getting it done right is more important than getting it done within the next three weeks.