Tips for Tax Filing Procrastinators
For many of us April 14th will be a hellish day, as we scramble to complete our taxes before the deadline – and men will procrastinate more than women, incidentally, according to this survey. With the clock ticking, it’s easy to make costly mistakes so here are some last-minute tips.
Don’t Forget Overlooked Tax Breaks
- Charitable Deductions. This not only includes the check you wrote to, say, the Red Cross for Hurricane Sandy relief, it’s also the ingredients you used to cook up meals to take to the shelters, the mileage you racked up driving from your home to a non-profit or charity. You can deduct 14 cents per mile plus parking and tolls paid.
- Student Loan Interest. For student loan borrowers – this is somewhat of a break. You can deduct up to $2500 of student loan interest. And get this – even if mom and dad are helping you pay off the loan, as long as the student’s name is on the loan (not Mom or Dad’s) the student can claim the deduction. The student must not be a dependent.
- Job Search Costs. Even if your job search was unsuccessful in 2012, you are still entitled to deduct some of the related costs from mileage to travel and lodging (if you had to travel far to the interview), staffing agency fees, cost of printing business cards, etc.
Beware of Audit Red Flags
While less than 1% of those earning $200,000 or less gets audited every year, you want to do everything possible to avoid more communication than necessary with the IRS. Some major red flags include:
- Underreported Income: The IRS has its eyes on your earnings. Its computers keep track all of our 1099 and W-2 forms.
- Massive Charitable Deductions: claiming to give more than what most give in your tax bracket can be a red flag to the IRS, as it compares your donations to national statistics. For example, the average charitable contribution for those earning between $50 and $100,000 a year is a little more than $2,600.
- Home Office Deduction: A qualified home office deduction must be a portion of your home that is used exclusively and regularly for your business. The office needs to be in a separate room or if it’s in a section of a room, the division needs to be clear.
Consider Professional Help
If you have really complicated taxes, you’re a business owner, you bought and sold lots of property, lots of stocks in 2012, then I think working with a tax preparer or accountant could be a smart investment – and it’s relatively affordable. (Of course this late in the game they may charge you a premium.) But according to a new survey by the National Society of Accountants, hiring a tax preparer costs an average $246 to complete an itemized Form 1040 with Schedule A, along with a state tax return. If a tax pro can realize just one deduction or credit you overlooked, that, itself help to pay for the fee.
E-File to Save Time, Money and Mistakes
Last year about 81% of taxpayers filed electronically. That number is increasing but that still mean about one in five are using a pen and paper. But get this: electronic filers see an error rate of just 1% versus 20% for those who file on paper and, according to the IRS, “a decreased likelihood” of hearing from them.
No Time? File an Extension
If you run out of time or simply don’t want to file in a frenzy you can always file a 6-month extension with the IRS (to October 15, 2013). Doing so ensures you won’t be subject to late fees and penalties. But don’t think you’re totally off the hook. The extension only means you have more time to file, not to PAY. You need to still estimate your tax liability and make a payment by April 15, 2013.