Last Minute Tax Filings

It’s getting down to the wire. You’ve got less than 48 hours to file your taxes if you’ve haven’t done so already. Chances are that if you haven’t filed your tax returns yet, you’ve got a small business and/or a more complex tax return that goes well beyond the scope of free tax filing programs.

The most obvious thing to do if you need more time is to file an extension, which gives you until Oct. 15th (for personal income tax) or Sept. 15th (for business income tax) of this year to file your taxes. Filing an extension can give you advantages; however, it can also increase the total amount you’ll be paying via interest and late fees. So, depending on how close you are to completing your tax returns, you’ll have to gauge whether to file or not to file by the April 15thdeadline, or rather, whether you should file for an extension or not.

Common reasons to postpone filing your taxes:

  • You haven’t compiled all the necessary paperwork needed to file your taxes correctly. You want to make sure you’re recording every single deduction you can take.
  • You own a business and want more time to fund tax-deductible retirement plans. A Keogh Plan, for example, lets you deduct either 20% of gross self-employment income or $49,000 (whichever is less) in 2009.
  • Your accountant will have more time to address your specific tax issues and needs. If you shelled out the money to hire an accountant, you want to make sure you’re getting your money’s worth. Your accountant will have more time to devote to completing your return when they aren’t rushing to complete a dozen other returns.
  • You probably won’t be audited. Usually, tax auditors fill their quotas before the April 15th deadline. So, the more time you spend on getting your tax return right, the better.

Filing an extension

To file an extension for personal taxes, you’ll be using Form 4868; for a business tax extension, you’ll use Form 7004. To file a business tax extension, all you need to provide is your business information (name, address and tax ID) and an estimation of your total income tax payment (which can be done easily by multiplying your past year’s profits by the applicable tax rate). Any major tax software will help you estimate the number.

The IRS strongly suggests making a payment based on your total tax estimation by April 15th, in order to reduce the amount of interest and late fees (which can get up to as much as 25% of your income tax) you’ll have to pay post-deadline. Don’t worry about overpaying. In fact, the IRS will send you a refund if your estimated payment ends up being too high.

Audit triggers

Rhonda Adams in USAToday cited nine triggers that can lead to a tax audit. Many of the triggers relate to conflating personal expenses with business expenses. In other words, writing off your recent African safari adventure as a business expense is not a great idea. Also, unwarranted and frequent lavish parties (which you might have actually cut down on this year due to the recession) are likely to come under scrutiny.

Another major item that’s been increasingly scrutinized lately is home office deductions. If you own a small business, it may be tempting to take home office deductions even if you don’t actually have a home office. To err on the side of caution, take these deductions if you’re positive you have the proper documentation to back them up.

Tips: You can use the free authorized e-filer FileLater (FileLater.com) to file your personal and business extensions. Their Personal Tax Extension system is able to file both personal and business extensions for you on one form, which is convenient for sole proprietors or single-member LLCs.

If you used one of the well-known tax software providers to file your returns, you can easily file your extension through their web site. TurboTax has a new, free service called TurboTax Easy Extension this year. Similarly, H&R Block’s TaxCut offers TaxCut Online/Software Extension, although they charge a fee of $19.95 for e-filing

your return. As an added incentive, TaxCut also gives you $10 off TaxCut Premium or Signature when you file your extension through them. However, this offer would most likely apply to people who started their tax return with another software provider and found themselves dissatisfied with the service.

E-filing errors

Here’s another compelling reason to file for an extension on your taxes: e-filing errors. If you’re a major procrastinator, don’t assume that you can be up late on the 15th, frantically rushing through an online system. This isn’t your freshman history paper—no partial credit if it’s not completely finished. Getting through the filing steps on a tax software service is just the first part of the process. Because you’re human, you’ll be forced to review and fix items in your return that may pose problems and delay your e-filing.

And don’t think that once you e-file, you’re home free. The IRS still has to approve your e-filed return. If you selected the direct debit/credit payment option, but for whatever reason your e-filed return was rejected, then your payment may be considered late unless you file an extension. The error could be as simple as incorrectly entering your birth date (i.e. your birth date not matching your SSN) or spelling your last name incorrectly.

(For a more detailed list of common e-filing errors, please visit the E-filing Errors and Issues on TurboTax’s support page.)

No matter how thorough you think you are, you can be just as prone to simple mistakes as anyone else, which you have a greater chance of making if you’re filing last-minute.

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