Tax Tips for Those Still Filing Tax Returns

This tax season got off to a late start because of Congress’ delay in passing new tax legislation until January 1, 2013.  The delay and new tax laws put the IRS behind in programming their computers and revising tax forms and instructions.  Coupled with late-arriving Forms 1099 from investment and brokerage firms, tax preparers have really been crunched this tax season!  Here are a few compliance issues and last-minute tax planning ideas to consider. 

1.     If you or your spouse have earned income and are under age 70 ½, consider contributing to an Individual Retirement Account (IRA) by April 15, 2013 (no extension permitted).  The contribution may or may not be deductible depending upon your specific circumstances.  An IRA allows tax on income and gains to be deferred until distributions are received.

2.     If you have a sole proprietorship, consider making a deductible contribution to a Simplified Employee Pension (SEP) IRA.  Any employees generally must also be covered.  A contribution may be made even if you are over age 70 ½.  The contribution must be made by the due date of your tax return, including extensions.

3.     Many tax returns claiming college education tax credits were rejected by IRS computers because new boxes on Form 8863 were not checked.  The IRS added new check boxes for lines 23 through 26 to confirm basic qualifications to receive the credit.  Some tax preparation software neglected to check all of the boxes, so be sure that yours are checked.

4.     Electronically filing your tax return and choosing to receive your refund by direct deposit will lower the chance of errors and speed up the receipt of the refund by several weeks.

5.     If you are unable to file your tax return by April 15, 2013, you may file Form 4868 with the IRS by April 15^th and receive an automatic six-month extension to file your tax return.  However, the tax must be properly estimated using available information and indicated on the extension form.  Actual payment isn’t required, but any tax owing and not paid will incur interest and also a late payment penalty of 0.5% per month if at least 90% of the actual tax isn’t paid by the original due date.

6.     The IRS just issued Notice 2013-24 granting relief from the late payment penalty if a filing extension is requested and if the tax return includes one of the many enumerated tax forms (e.g. Form 4562) that were issued late because of the delayed tax law.  The Notice requires that the taxpayer make a good faith effort in calculating the tax and to pay it by the original due date, with any balance owed being paid by the extended due date.

7.     Don’t forget that the first quarter 2013 estimated tax payment due date is also April 15, 2013.  For higher-income individuals, be aware that income tax rates have increased and new taxes are imposed as part of the Affordable Care Act (Obamacare).  These changes should be taken into account when calculating your estimated tax payments to avoid an unpleasant surprise next year.

8.     If you have not yet filed your 2009 tax return and you are owed a tax refund, you will forfeit that refund under the three-year statute of limitations rule if you do not file your 2009 tax return by April 15, 2013.