This episode is the second of a two-part series on your federal income taxes.
This episode will focus on how and why you might consider filing for an extension on your taxes. As a bonus, I'll give you a few last-minute tips on reviewing your return.
Facts About Filing
Money Girl here. First off, if you’re expecting a refund, it’s a smart idea to file on or before April 17 so you get your money back soon. Remember, that if you’re getting a refund, you’ve made a free loan to Uncle Sam. To find out how to adjust your withholding so that you don’t make a free loan to him again in 2007, listen to Episode 8 of my podcast.
If you do need more time to prepare your tax return, you can quickly and easily file an extension. Filing an extension will buy you an additional six months to complete your tax return.
If you don’t file an extension or your tax return by April 17 and you owe taxes, watch out! The IRS can charge you a failure-to-file penalty of 5% of the tax due for each month your tax return is late up to a maximum of 25%. So if you owe and know you can’t file your return on time, be sure to file an extension by April 17 to avoid this penalty. If you’ll be getting a refund, on the other hand, there’s no penalty for filing late.
Remember, getting an extension extends the date for filing your return only, not the date for actually paying your taxes. Even if you file an extension, you need to pay an estimate of the taxes you owe on or before April 17 to avoid a failure-to-pay penalty and interest.
The penalty for paying your taxes late, as opposed to failing to file for an extension, is actually not that steep – it’s 0.5% for each month any tax is owed starting from the April filing deadline. In addition, you’ll need to pay interest on taxes you pay late. The interest rate changes quarterly and is currently 8%.
Are There Benefits to Filing for an Extension?
Although being on time is generally good manners and a good practice, when it comes to your taxes, there are actually some benefits to getting an extension and filing late.
For starters, you get six more months to prepare your return! Getting the additional time can be a welcome relief if you need it.
Second, if you use a professional to prepare your taxes, you’re very likely to get better service if you file late. After the April filing deadline is the “off peak” time for tax professionals. You’ll find that they’ll be less rushed and you’ll be more likely to get quality time with them during their “off peak” season.
Third, your chances of getting audited may be lower if you file your tax return late. Now, why is that? Some tax professionals believe that the IRS selects most returns for audit during the summer from the pool of returns that were filed on time. If you file in the fall on or before the October 15 deadline, the IRS may have already reached its quota for the number of returns to audit. Filing as late as possible may decrease the chances of getting audited. But remember, the best way to decrease your chances of an audit is to be as accurate as possible with your tax returns.
How to Get Your Tax Refund Quickly
Finally, here are a few basic last-minute tax tips that apply to all filers who want their tax refund as quickly as possible:
Sign everything. According to the IRS, the single most common mistake that results in delayed tax refunds is that people just forget to sign their return or their check. Specifically, make sure that you and your spouse both sign if you are filing jointly. This is true even if your spouse did not earn any income.
Consider e-filing. The program for e-filing will alert you if you forgot to fill out any portions of your return. The envelope you put your paper return in will not be so helpful. Also, if your adjusted gross income is $52,000 or less in 2006, you can e-file your federal tax returns for free through the IRS’ Free File program. The IRS estimates that 70 percent of all taxpayers, 95 million taxpayers, are eligible for this program.
Very carefully look at all the dependents you claim. For example, your child might have moved out of state for college and established residency there. If so, that child might not be your dependent anymore.
Make all checks and money orders out to “United States Treasury.”
Cha-ching! That's all for now, courtesy of Money Girl and Legal Lad.
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Money Girl and Legal Lad are part of the Quick and Dirty Tips network. Check out the other helpful Quick and Dirty Tips podcasts like Modern Manners Guy and The Mighty Mommy. Thanks for listening!
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