OK procrastinators, it’s go time.
The official deadline for filing either returns or extensions for the 2014 tax season expires in less than 36 hours, and IRS spokesman Dan Boone offers five simple tips for last-minute filers.
- Avoiding the late-filing penalty is simple. File either your tax return or an extension request before midnight April 15.
- Anyone can file an extension request free at IRS.gov through the IRS Free File program. Filers whose 2013 income was $58,000 or less can use the Free File program to file their federal tax return.
- An extension grants additional time to file, but tax payments are still due April 15. So, pay as much as you can when you file your tax return or extension request, then fill out an online payment agreement request at IRS.gov to pay the balance.
- Data entry errors can cause problems. Make sure information on your tax return – such as social security numbers and bank routing or account numbers – is correct.
- Find the tax information and tools you need at www.IRS.gov.
So that takes care of your federal filing needs, but what about your state returns?
The Alabama Department of Revenue website offers your one-stop shop for last-minute information, links and tips.
According to the site, nearly 1.4 million Alabamians to date have filed individual tax returns in 2014 for tax year 2013, with electronic filings outpacing paper returns nearly nine-to-one. Of those returns filed to date, nearly 69 percent will result in refunds.
(Click here to see DealNews’ nifty infographic explaining exactly how folks plan to spend those refunds.)
Meanwhile, Paul Taylor, an architect-turned-founder and owner of Capital Investment Advisors Inc. offers the following strategies for side-stepping the five most common tax filing mistakes.
- Not knowing which tax deductions are available. Tax reform measures are enacted frequently by Congress, which makes it hard for U.S. taxpayers to know which deductions are currently available for maximizing savings. One of the most overlooked deductions is state and local sales taxes. Taxpayers may be able to take deductions for student-loan interest, out-of-pocket charitable contributions, moving expenses to take a first job, the child care tax credit, new points on home refinancing, health insurance premiums, home mortgage interest, tax-preparation services and contributions to a traditional IRA.
- Misunderstanding deduction value for medical expenses. The federal Affordable Care Act has altered the guidelines for tax-deductible medical expenses. Effective Jan. 1, 2013, the new policy increased the threshold for the itemized deduction for unreimbursed medical expenses from 7.5 percent of adjusted gross income to 10 percent of adjusted gross income for regular tax purposes. The increase is waived for individuals age 65 and older for tax years 2013 through 2016.
- Confusing when taxes must be paid on IRA and employer-sponsored retirement funds. Traditional IRAs and most employer-sponsored retirement plans are tax-deferred accounts, which mean they are typically funded with pre-tax or tax-deductible dollars. As a result, taxes are not payable until funds are withdrawn. Exceptions are the Roth IRA and the Roth 401(k) and Roth 403(b). Roth accounts are funded with after-tax dollars. That’s why qualified distributions – after age 59½ and the five-year holding requirement has been met – are free of federal income tax.
- Overlooking tax-advantaged investments. Tax-advantaged investments can include real estate partnerships, oil and gas partnerships and suitability, which refers to how appropriate an investment may or may not be to an investor. Two of the most common types of real estate partnerships, for example, are low-income housing and historic rehabilitation. The federal government grants tax credits to those who construct or rehabilitate low-income housing or who invest in the rehabilitation or preservation of historic structures.
- Uncertainty when accounting for gift taxes. The federal gift tax applies to gifts of property or money while the donor is living. The federal estate tax, on the other hand, applies to property conveyed to others, with the exception of a spouse, after a person’s death. There are several exceptions to gift taxes, including gifts of tuition or medical expenses that you pay directly to a medical or educational institution for someone else, gifts to a spouse who is a U.S. citizen, gifts to a qualified charitable organization and gifts to a political organization.
April 14, 2014