The tax deadline is approaching: are you prepared? To avoid paying potential late fees, you must have your return filed or postmarked before April 15. Here are some last minute tax filing tips to help ensure you’ve got all of your income tax ducks in a row.
Don’t Rush to File
Oops! You forgot about your taxes and the filing deadline of April 15 is right around the corner. Or maybe you haven’t received all of your W-2’s, 1099’s, or simply do not have all your records in order. Whichever scenario may apply, there is no need to rush to get them out the door. Whether you are an individual working for an employer or a sole proprietor working for yourself, the IRS does allow you to file for an extension. This extension will change your tax return due date from April 15 to October 15.
Although you will have more time, this extension is not an extension of time to pay the income taxes you owe. In order to complete the extension form you will have to estimate the balance you may owe and pay it at the time of filing for the extension. The trick here is to be reasonable in your estimate. If you happen to not owe any taxes but would actually be receiving a tax refund back, then good news for you! The IRS does not assess a late filing penalty if you do not owe any taxes. You can simply wait until you are ready to file. You can file for free an extension via Form 4868 through the IRS website here.
Do Not Overpay Your Tax Preparer
Most people dread taxes as they see it as the time of year they have to shell out cash for both taxes and for someone to prepare them. Well they are wrong. There are various ways out there to save on the cost of filing your tax return. Although it is always recommended to seek an expert as they do know the ins and outs to save you rightfully earned money, many people like to file their tax returns themselves. TurboTax offers free E-filing for 1040EZ/A tax returns. These are basic tax returns where the individual takes the standard deduction and may receive the earned income credit. The next level, deluxe version, is for tax returns where individuals itemize their deductions and is quite affordable at $54.99. TurboTax provides a step-by-step process that really makes things easy for those that do not know the tax laws and tax jargon.
The IRS offers two free tax preparation programs. The first, the Volunteer Income Tax Assistance (VITA) program, offers free tax help for people who generally make $53,000 or less, persons with disabilities, the elderly, and limited English speaking taxpayers who need assistance in preparing their own returns. The second program is the Tax Counseling for the Elderly (TCE) program which provides free tax help for all taxpayers, particularly those who are are 60 years or older. Volunteers for both are certified. For more information and to find a location visit the IRS website here.
Records, Records and More Records
This is an important one!! Although the risk of your tax return being audited by the IRS is low, it is very real. Many people haphazardly keep receipts and invoices throughout the year that pertain to their deductions or business expenses. They then add in other expenses from their bank or credit card accounts that they are sure are deductible items. This major, common misconception that bank statements and credit cards statements are sufficient records is false and could land you in hot water. You need to be able to substantiate your expenses or deductions with receipts showing who you paid, how much, for what and when. If you use your personal vehicle for business purposes and elect to deduct your mileage, you will need to maintain a travel log denoting days you traveled, where to, and for what business related purposes.
The best way to be fully prepared with adequate documentation is to keep records throughout the year as you go. Obviously, this sounds much easier than it actually is. However, with smartphones taking over the market there are various phone applications available that allow you to take a photo of your receipt, categorize it to the appropriate expense item, track your mileage, and upload it to store on your computer.
Keep Your Receipts and Invoices
You don’t want to try and scramble 3 years from now for receipts or invoices that you “know you have somewhere.” Generally, the IRS can look back into your taxes for up to 3 years after you filed the tax return. Each state can also look into your records or select them for audit for various years. Some states follow the IRS 3-year rule while others have their own rule ranging from 3-5 years. It’s a good idea to look up your state’s requirements so that you know how long to keep your records. These records include all items related to your tax return including invoices and receipts as noted above. With technology today, it is easiest to scan and upload these to your computer or remote storage device (DropBox, Google Drive, etc.). This way you always have access to them and know they are secure.
Also, you should note that if you misreport your income, the 3 years above no longer applies and it could be longer. If you file a fraudulent return note you must keep your records indefinitely.
All Your Volunteering May Pay Off
Although many people volunteer their time to help charities or serve on a board of a not for profit, this time is not deductible. However, for your good deed, the IRS does allow you to deduct the travel expenses to get to those events. In order for the following items to be deductible, they must be for a qualified, IRS-recognized, not for-profit-charity.
You can choose between deducting actual gas and oil used or taking a mileage deduction rate of $0.14 per mile. As stated above, keep receipts if you elect to use the actual method or keep a detailed travel log of miles traveled.
Additionally, there are more deductions a volunteer can take while traveling to attend a convention, board meeting, or take part in a volunteer activity. Deductible travel expenses include airfare and other transportation, accommodation, and meals for services performed away from home.
You Can Deduct Donated Items
Did you donate any property this year? You are in luck! Property donated to a qualified charity is deductible on schedule A of your tax return. There are a few requirements you should know about. If your donation value is:
- Less than $250 – you need to get a receipt from the qualified charity denoting date, location and description of the property
- $250-500 – a written acknowledgement of the donation with item description and a good faith estimate of value
- $500 – 5,000 – the same above information along with description of how and when you received the property and your basis in the property
- $5,000+ – a qualified appraisal must be done
All of the above may or may not apply to your situation and this is not direct tax advice. As always, it is suggested to contact a tax professional if you have any questions on your unique situation. Feel free to reach out to us at www.CPAYourWay.com with any questions you may have or if you need assistance in preparation of your tax return.