“I can’t believe I am a week away from when my tax return needs to be filed”. I am sure that there will be a few people who are reading this blog who have that thought in their mind and panic is starting to set in big time.
If this is you, what should you do rather than panic? First, get a cup of coffee, take a deep breath and relax. Second, get all the tax records you have for 2011 in front of you and, third, contact your tax professional to schedule a meeting (don’t be surprised if this is hard to do!)
If you are going to do this yourself, that is fine, but recognize that you may have issues that are complex and need that tax professional to assist you.
Since we are approaching the deadline, you may want to take advantage of filing Form 4868, Request for Automatic Extension of Time to File Your Return, so that you do not make any rash decisions in filing the return and save yourself the time to file an amended return when you find some mistakes or corrections later.
Filing Form 4868 is solely for the purpose of delaying the filing of paper, it is not for delaying the payment of any tax due. Taxes are due by April 17th, any amount paid after that date may result in penalties and interest for late payment. So you need to get most of your tax return completed to figure out what tax, if any, is due that needs to be paid with the filing of the extension.
What kind of things could delay the completion of your return by April 17, 2011? Here is a list, but by no means everything, that could be needed:
- You may not have all your itemized deductions or business expenses compiled. Missing items could mean you would be over paying your tax liability. Maybe you did not keep all your medical receipts and when you work on your return you realize you can get a medical deduction on Schedule A. Maybe you need to figure out the value of the donations you made to various charities of clothing and household items.
- You may have sales of investments that you do not have the cost basis to figure the correct gain or loss. When you go to complete Schedule D this year, you will also find a new Form 8949 that requires more information than what you were required to report in past years. This may prevent the completion of your return.
- If you have Schedule C income, you may want to consider contributing to a SEP-IRA or other retirement account that basis its amount on how much you have as a profit for the year. Once you calculate this amount, you would have until October 15th to put that contribution into the SEP-IRA to get the deduction for 2011. This contribution would reduce your tax liability so this is a positive action to take.
- You may be missing some tax forms and need to get copies of them to get a complete and accurate return completed. Many brokerage firms have issued corrected Form 1099-B that reports your dividend, interest income and capital gain and loss activity for 2011. You may need to track these items down.
Once you file the Form 4868, you will have until October 15, 2012, to complete and file the actual return. So don’t forget to finish this job up in the next few months.
If you do file the Form 4868, don’t forget to include the check for any tax due from what work you did on your return. Not paying now could result in a potential penalty for underpayment when you file the finished return later and you owe too much come October.
While you may delay the filing of your return until October, you only have until April 17th to fund any Roth IRA or Traditional IRA that you want to do for 2011. The maximum amount for either of these is $5,000 per person ($6,000 if over age 50 in 2011). So you need to act on this in the next few days.
Finally, if you do complete your return and get it filed by April 15th, and you see you have a large refund coming, consider changing the amount of taxes being withheld each pay period to give yourself a raise in take home pay. Then be sure to set up an automatic transfer of that extra money in your checking account to go to that Roth IRA that you have been meaning to do for several years to give your retirement fund a jump start. Thought I was going to forget that this is a financial planning blog?
Francis St. Onge, CFP®
Total Financial Planning, LLC