The IRS announced that it will provide penalty relief to taxpayers impacted by the storms who were not able to file or pay taxes due until after the April 15th tax deadline.

If you were impacted by the storms, you may qualify for relief of the late-filing penalty of 5% per month and the late-payment penalty of 0.5 percent per month as long as there is reasonable cause and you file your tax return or pay the taxes due within a reasonable time after the power outages and transportation problems are resolved.

If you receive a penalty notice from the IRS and you were impacted by the storms, the IRS will remove the late-filing and late-payment penalty.

Don’t forget, if you suffer a casualty loss from a federally declared disaster, you may be able to deduct the casualty loss on your tax return for the previous tax year or amended tax return for the preceding year.

In the wake of the tragic bombings that occurred in Boston on Monday, April 15, the IRS announced today a three-month tax filing and payment extension to provide relief to Boston-area taxpayers and others affected by Monday’s explosions.

The relief will give eligible taxpayers until July 15, 2013 to file their 2012 tax returns and pay taxes that were due on April 15th without incurring filing and payment penalties.  Interest penalties, however, will still apply to any payments made after the April 15 tax deadline.

Who is Eligible for Relief?

The relief applies to individual taxpayers who live in Suffolk County, Massachusetts, including the city of Boston.  In addition, victims, their families, first responders, taxpayers whose tax preparers were affected, and individuals living outside Suffolk County who were impacted will be eligible for relief.

How Do You Get an Extension?

If you live in Suffolk County, the IRS will automatically provide you an extension and no further action is necessary.  If you live outside Suffolk County, you can call the IRS beginning Tuesday, April 23 at 1-866-562-5227 to claim relief.

If eligible, you may also receive an additional extension, to October 15, as long as you file extension Form 4868 by July 15, 2013.

Don’t have the money to pay taxes? File an extension. Still trying to get everything in order? File an extension.

However, the tax extension isn’t exactly what it sounds like, and it doesn’t really “cure” anything. Here are 5 important facts about filing a tax extension that you need to know before you file.

1. An Extension Isn’t Really an Extension

The word “extension” is somewhat misleading. When you file a tax extension, you’ll get six extra months to turn in your tax paperwork to the IRS. Sounds reasonable, but keep reading.

The keyword here is “paperwork”. A tax extension doesn’t extend the deadline to pay any taxes that you may owe to the IRS.

Sound backwards? Not what you expected? Welcome to enlightenment my friend.

If you file an extension, you will still have to pay any due taxes by the normal tax deadline. So before you file an extension assuming you’ve got 6 extra months to pay your taxes, think again.

2. The Penalty is in the Eye of the Filer

In sports, penalties are up to the discretion of the referee. When it comes to tax time, the IRS wears the zebra stripes.

Although technically you’re not penalized or charged a fee for submitting the tax extension paperwork – Form 4868 – there could still be a downside to filing an extension.

If you file an extension but you’ve got a good grasp on your situation and you are pretty sure a tax refund is in your future this year, then you really have nothing to worry about. The government will hold onto your refund until you get your paperwork sorted out during your extension period.

Once you file, you’ll get your refund.

But the rules change a bit if you end up owing taxes to the IRS. If you file an extension but you choose not to pay estimated taxes by the tax deadline, the IRS will charge you interest on the taxes that you owe them.

Feels like a penalty to me.

3. You Can Request An Extension Using TurboTax

Many people still believe that the only way to file for an extension is the old-school paperwork method. Not so anymore.

The IRS will gladly accept your tax extension form via tax software and the world wide web. Simply use your tax software to e-file your Form 4868. The IRS will acknowledge your request as long as you file by the tax deadline.

4. Your Reasons Usually Don’t Outweigh the Benefits

Unless there are certain pieces of paperwork you’re waiting to arrive in the mail, an extension probably won’t deliver the benefits you might expect.

If you’ve procrastinated during tax season, the solution isn’t an extension. You could end up costing yourself more money and more frustration by asking for more time.

The best piece of advice is to buckle down, stare your tax paperwork in the face, and get it done on time.

5. No Extension for IRA Contributions

Lastly, if you think you’ve found an IRA-contribution loophole in the tax process, think again. Requesting a tax extension doesn’t have any impact on the deadline for contributing to your Traditional or Roth IRAs.

If there’s no possible way you’ll make the tax deadline, as a last resort you can go online and file for an extension by April 15.

Filing an extension automatically pushes back the tax filing deadline to October 15, 2013 and protects you from the failure to file penalty which can grow at a rate of 5 percent of the amount due with your return for each month that you’re late, up to five months. For example, if you owe $2,500 and are three months late, the late-filing penalty would be $375.

Be aware that filing an extension is simply an extension of time to file, not an extension to pay. If you owe money for the 2012 tax year, you still need to pay your tax liability (within 90 percent accuracy) by April 15 to avoid paying interest and penalties on the amount owed.

Filing an extension does not stop you from incurring interest and paying a late payment penalty. You will incur interest at a rate determined quarterly based on the federal short-term rate, plus 3% compounded daily even if you do file an extension, which is why filing for an extension should not be thought of as a way to delay tax payments.

You will also have to pay a late payment penalty, which is one-half of one percent of tax owed each month or part of the month until tax is paid in full or 25% max is reached.

Even if you are unable to pay your tax liability in full, pay as much as you can with your tax return. You can even apply for an online payment agreement or Installment Agreement Request when you submit your tax return.

So, do you really need more time to file your taxes this year? Whether you’re filing your taxes up until 11:59 pm on April 15 or you need to file an extension, relax, we’ve got you covered. TurboTax makes it easy for you to finish filing your taxes, but if you need more time, you can file your extension online for free in minutes with TurboTax Easy Tax Extension. And, only TurboTax lets you talk to CPAs, IRS enrolled agents and tax attorneys while you prepare your tax return, free.

Disaster Relief

In the aftermath of Hurricane Sandy, the president signed disaster declarations for taxpayers impacted by Hurricane Sandy yesterday.  Today it was announced that the IRS is giving relief to those who file payroll and excise tax returns and make payments normally due on Wednesday.  The deadline for payroll and excise tax returns was extended one week and is now November 7th.

The IRS says additional filing and payment relief will be granted as the Federal Management Agency (FEMA) makes further disaster declarations.

Per the IRS, no action is required by impacted taxpayers, as the relief is automatic.  For more information on disaster relief, check out the IRS newsroom announcement.

Tax Filing After Deadline

I missed the tax deadline. Should I still file?

Yes, you should still file your taxes as soon as possible.

How should I file my taxes?

IRS e-file is now closed, but there is good news.  You can still file using our downloaded TurboTax software and mailing in your tax return.

Will the IRS charge penalties for not filing by October 15th?

If you have a tax refund coming, there is no penalty for filing late.  Penalties are calculated based on amounts due.

If I owe money, will I be charged penalties and interest?

Unfortunately, you will receive three separate penalties on balances due on late tax returns as follows:

• Failure-to-file penalty
• Failure-to-pay penalty
• Interest

The failure-to-file penalty can be the most steep, as it starts out at 5% for each month the tax return is not filed, up to a total penalty of 25% of your balance due, which is why you should file your taxes as soon as possible.  Even if you owe money and can’t pay it you should still file to eliminate this penalty.  In addition, you may be eligible for other payment options under the IRS Fresh Start Initiative.

If I have a hardship will I still have to pay penalties?

If you show the IRS reasonable cause for not filing on time, you may not have to pay penalties.

In addition, 2011 tax deadlines for individuals and businesses impacted by Hurricane Isaac have been extended to 1/11/2013.

Hopefully this puts your mind at ease and moves you closer to filing your taxes. Just because you didn’t make the tax deadline doesn’t mean you should forget about filing altogether.  Who knows?  You may be missing out on a tax refund.

Tax Deadline

Time can get away from us and even those extra six months can fly by and leave you scrambling come October. If so, here are 3 last minute tax tips to help take some of the stress out of this tax deadline.

1. File Electronically

The last thing you want to be bothered with on the tax extension deadline is finding time to get to the post office and mailing out your tax return. Your life is busy enough, and if something comes up at work and you can’t get your tax return sent out in time you’re potentially setting yourself up for additional penalties.

So, stick to filing electronically so that you know your return gets into the hands of the IRS before the deadline passes. Luckily, if you are using TurboTax, you can e-file your tax return any time up until the October 15^th deadline.

2. Review Carefully

Since you are not allowed any additional extensions on personal income taxes past the October 15^th deadline, you’ll want to spend the time to make sure you’ve got everything correct on the return. Even if you find yourself rushing on the tax deadline day, it’s a good idea to make sure it’s accurate to avoid any further issues with the IRS.

Go through your tax return and double check all of the names, social security numbers, and wages reported from your W-2s and 1099s. Then be sure to go over all of your potential tax deductions and check that you’ve included everything and the numbers are correct.

3.  Get Organized

If going through the extension process stressed you out, then now is a good time to get organized so that it doesn’t happen next year. By the time the October 15^th tax deadline passes there’s less than three months until the close of the current tax year. That leaves little time to get things together, but if you take the time to start now, you’ll find that you probably won’t need to rush around in the spring and won’t need to file an extension.

Start by gathering any expenses or deductions from the past year. This is especially important if you’re self-employed and have a lot of expenses to track. By getting those items gathered and put aside today, you won’t need to dig for them in the spring.

Finally, start thinking about year-end tax moves you can make that will reduce your tax bill. This may include making IRA contributions or scheduling January’s mortgage payment to come out of your account at the end of December. Preparing for these tax moves today can help lower your tax bill tomorrow.

Teacher’s Educator Expense Deduction

As you gather together your paperwork for 2011, don’t forget the educator expense tax deduction. It’s available to teachers, instructors, counselors, principals and aides for grades K-12 who work at least 900 hours during the school year. (Parents who home school their children are out of luck, since the costs for home schooling aren’t eligible for this deduction.)

If you qualify, you can claim up to $250 of your out-of-pocket expenses for classroom supplies, materials, books, computer equipment, software, other equipment, and supplementary materials, as long as you didn’t receive reimbursement. You don’t have to itemize your deductions either.

If you and your spouse are both teachers, you can double up and each claim the deduction for a combined deduction of $500. Of course, you can’t each claim a deduction for the same costs, so be sure to split the purchases between you for maximum tax savings.

Now for the fine print, which affects just a few people:

• If you teach courses in health and physical education, your expenses for those courses must be related to athletics.
• The educator expenses have to exceed any interest on US savings bonds that were used to pay education expenses and excluded from income.
• The expenses must exceed any tax-free distributions from a 529 plan or other tuition program that you excluded from income, including any tax-free withdrawals from your Coverdell Education Savings Account.

Congress decided a few years ago to give teachers a break temporarily. Though Congress extended the deduction each time it was set to expire, it wasn’t extended this year, so as things stand now there is no educator deduction for 2012. But it wouldn’t hurt to hang onto your receipts for 2012 just in case Congress acts to reinstate it later this year.

Don’t let your tax extension cost you more. Take a look at some of the most commonly missed tax deductions by extension filers.

‘Out of Pocket’ or ‘Noncash’ Charitable Contributions

Even if you’re in a rush, it’s hard to forget about those larger monetary charitable contributions. They usually leave a pretty obvious paper trail.

But what about those smaller contributions made with your pocket change, your gas money, or by donating goods and services to local charities and non-profit organizations? When you’re already past the April tax deadline and you’re in a rush to file your taxes, it’s easier to forget to take the time to add up all of the small stuff.

Many extension filers admit to caring more about filing before October vs. making sure they get every single deduction. Don’t forget, adding up the small stuff can make a huge impact.

State Sales Tax

The State Sales Tax deduction is a tax deduction that gives you the opportunity to choose between deducting state and local income taxes on large purchases or state income taxes.

If you live in a state with zero income tax (South Dakota, Washington, Alaska, Texas, Nevada, Florida, and Wyoming) then this is your chance to deduct state and local sales tax since you won’t have any state income taxes to deduct. Unless Congress votes to extend this tax provision, then 2011 is the last time you will be able to take advantage of this tax savings.

Student Loan Interest

If you made student loan payments on qualified student loans, the interest portion up to $2,500 is tax deductible.

You can even deduct your student loan interest if your parents are making your payments as long as they are not claiming you as a dependent. According to the IRS, the payments may be looked at as a financial gift from your parents.

Earned Income Tax Credit

Figures from the IRS show that more than 25% of eligible tax filers forget to claim the Earned Income Tax Credit. Many people aren’t aware that they qualify.

On average, households which claimed the EITC last year saved an additional $2,000. When you sit down to file your taxes don’t forget to claim the Earned Income Tax Credit.

Don’t worry about missing these valuable tax deductions and credits.  TurboTax will help you take advantage of these and other tax deductions.

Tax Deadline

When is Your Extended Tax Return Due?

Your timely filed extension changes your deadline to file from April 17 to October 15.  Of course, this six month delay assumes you paid any tax you owed back in April. As the saying goes, an extension of time to file is not an extension of time to pay your tax.

How Do You File a Tax Return You Previously Extended?

To file an extended tax return, simply gather and enter the information from your W-2s, 1099s, and tax documents.  TurboTax will ask you the necessary questions to enter the appropriate information from your documents and help you complete your tax return.

What Should I Do If I Didn’t File a Tax Extension?

If you missed the tax filing deadline and the deadline to file an extension in April, you should still file your tax return as soon as possible.  You may be missing out on your big tax refund and if you owe money you will continue to incur penalties and interest until you file your tax return.

Need More Time?

Years ago, filing an extension provided the filer with four additional months to file his or her return, until August 15.  Back then, you could apply for an additional two-month extension if you needed it.  While that second extension wasn’t technically automatic, it was nearly so.  These days you automatically get the additional six months from the get-go.  On the other hand, that means no additional extensions are available so make sure you file your tax return by October 15.

Tax Deadline

Besides procrastination, some are delaying getting their taxes completed because they are worried about getting them done correctly. Fortunately there are ways to help with both.

Tips on Getting Your Taxes Done

If you’re worried that you won’t get your taxes done on time, here are a few tricks you can use to get it completed and off your already full plate.

• Create Your Own Deadline: October 15th is the official tax deadline, but you can do yourself a big favor and pick an earlier date to be your deadline. Mark it on your calender (offline or online) and make sure it’s listed as a big event. You don’t want to miss the date. Just think of it this way – the sooner it’s over, the sooner you can relax.
• Break It Down: Do you feel overwhelmed at the amount of work ahead of you? Break it down into little pieces of work. Get your W-2s in one day, take care of your 1099s the next, and so forth. When we were doing our taxesthis year, I simply entered the information bit by bit into TurboTax online as it came in. No stress, no mess.
• Enlist an Accountability Buddy: If you need a bit of a push, ask a friend or relative to keep tabs on you until you filed your taxes.

Try out any one of these tips starting today and add another if you need a bigger boost.  Don’t avoid filing your taxes even if you didn’t properly file an extension.  You may be missing out on a nice tax refund.

Thoughts on Tax Extensions

Please remember that the tax extension is an extension of time to file and not an extension to pay. If you owe money and you don’t have the total amount, please go online to the IRS.gov or call them (800-829-1040) to request a Online Payment Agreement and get on a payment plan. If you have any questions, please leave it in the comments below.

I’d love to hear from you about how you’re doing this year. How many of you had filed an extension for your taxes? How many of you still need to file before the deadline? What is the biggest barrier for you?

Tax Deadline

• File an extension – Some people automatically are given extensions. If you live and work abroad, you have until June 15 to file, though your taxes are still due April 17. If you are serving in Iraq, Afghanistan or other combat zones, you have until 180 days after you leave the combat zone to file and pay your taxes. If you live in an area recently affected by natural disasters, you may have until May 31 to file and pay.

If you really need extra time to prepare your tax return, file an extension by April 17 to request  until October 15 to avoid nasty 5%-per-month penalties for late filing and late payments. But remember, filing an extension gives you extra time to file, but not to pay, so it isn’t a solution if you can’t pay your tax.  Plus, once you enter your tax information you may be entitled to tax deductions and credits you didn’t know about so you may not even owe.

When you file, pay as much as you can with your tax return to avoid penalties and interest. As for the rest, the IRS feels your pain and is willing to work with you to devise alternate payment options. Here are a few:

• Fresh start for the unemployed – In March the IRS announced a new Fresh Start initiative. If you were unemployed for 30 days or longer in 2011 or 2012, they will waive the late payment penalty for six months. Form 1127-A (Application for Extension of Time for Payment of Income Tax for 2011 Due to Undue Hardship), which you can download from IRS.gov, will give you until October 15, 2012 to pay the taxes and interest that are due for your 2011 tax return. If you are self-employed and your business experienced at least a 25% decline in revenue due to the economy, you may also qualify for this Fresh Start.

• Installment payment plan – If you owe $50,000 or less, you can request a payment plan by going to IRS.gov and filling out the Online Payment Agreement you’ll find there, or call  800-829-1040. If you owe more than $50,000, you will need to complete a financial statement to determine the monthly payment amount for an installment plan.

• Hardship cases – If you will become destitute if you have to pay the taxes, you can fill out Form 911, Request for Taxpayer Advocate Service Assistance, to ask the IRS to delay tax collection. This isn’t your best option, since you’ll still be racking up penalties and interest and the IRS can file a lien against you.

• Offer in Compromise (OIC) – You may be able to make an offer to settle with the IRS for something less than is due. You’ll have to fill out Form 656 and show that you are unable to pay, for example, the amount owed is higher than your total assets and income.

If none of these options appeal to you, there are many places you can turn to get the money to pay your taxes, but make sure you find out about the tax consequences for some of them. Home equity loans, 401(k) loans and borrowing on cash value life insurance are possibilities for some. Credit cards can be used, though you will be charged a processing fee.

If you can’t pay your tax, don’t bury your head in the sand — hiding from the IRS is not a successful strategy and may cost you in the end. Failure to work with the IRS may incur stiff penalties, result in enforced collection action, and in extreme cases the end result could be criminal penalties and even jail time.

Tax Extension

Common Misconceptions

The reasons taxpayers file extensions vary, but one of the common misconceptions regarding extensions is that they are extensions to pay tax liability.   If you are planning to file an extension because you owe money (or think you do), think again.  Filing an extension won’t help you forgo those extra penalties and interest, because an extension is an extension of time to file and not an extension to pay.  If you file an extension, you still need to pay (within 90 percent accuracy) by April 17 to avoid late penalties.

File by the Tax Deadline

Even if you owe money and are unable to pay your liability, file your taxes on time since an extension will not rescue you from any additional penalties and interest.  If possible pay as much as you can with your tax return and then you can apply online for an online payment agreement or send an Installment Agreement Request, with your tax return for the balance.

TurboTax makes it easy for you to quickly file your tax return and if you still have questions you can get them answered from our experienced tax experts for free so you can accurately finish your tax return by the April 17^th deadline.  And who knows? Once you take advantage of all those tax deductions and credits, you may be getting a tax refund instead of owing money.

Still Need More Time?

If you just have to file an extension, you will get an extra 6 months to file your taxes, but not pay your tax liability.  You can file it for free online in minutes with TurboTax Easy Tax Extension.  Keep in mind you still have to estimate your tax liability to enter on the form and include any taxes you already paid.  On the go?  TurboTax also has easy extension available from the App Store.

So what are you waiting for?  You don’t want to delay filing your taxes since an extension won’t extend your time to pay any tax liability and you may even get a tax refund.  Plus you can quickly and easily file your taxes before the tax deadline so you can possibly enjoy the extra days given to file taxes doing something else.

During my career as a CPA, I am always amazed by the amount of people who wait to file their taxes for these and other reasons when they may have a tax refund waiting. Even if they don’t have a refund coming, they rather risk increasing their tax liability by waiting to file their taxes.

Here are 7 good reasons why you should file before October 17th:

• You May Incur Additional Penalties, Late Fees, and Interest Charges by Missing the Deadline – After October 17th you will continue to incur additional penalties, late fees, and interest charges if you owe money.  Remember, your extension was an extension of time to file and not an extension to pay.
• Filing Is Made Easy – Once you have your documents in order (and you should by now), using tax software like TurboTax makes filing your taxes easy by guiding you step-by-step through the process all while following IRS guidelines.
• E-filing Makes Filing Your Taxes Even Easier -  Did you know that electronic filing of individual returns using consumer software like TurboTax continues to grow steadily at almost 12% per year?  The IRS goal for e-filed returns in 2011 is 80% and they are almost there since they continue to support consumer tax software like TurboTax with e-file capability.  So what are you waiting for?  E-filing is easy and more accurate.  Per the IRS, 20% of tax returns prepared on paper have mistakes, which may cause overpayment of taxes.  If an error is made during the e-file process, the IRS will send an error report so that you can fix the problem and resubmit the tax return.  You also will get your refund quicker.  Per the IRS, if you e-file an accurate return, your refund check can be direct deposited into your account in 8 to 15 days after IRS acknowledgment and three weeks after acknowledgment if you chose to have a check mailed to you.  If you paper file your tax return, you will have to wait up to six weeks from the date the IRS receives your tax return.  And how will you know when the IRS receives your paper filed tax return?  Good question.  There is no way to know, but when you e-file you will receive an acknowledgment from the IRS which lets you know whether or not your e-filed return was received.   For more information on the IRS refund cycle, please see our Where’s My Refund blog.  Also, keep in mind that the IRS shuts off the ability to e-file your 2010 tax return after October 17th so you have to e-file before the deadline to take advantage of all the benefits. For more on e-filing also see our Avoid Post Office Lines blog.
• You May Miss Tax Deductions and Credits – Taxpayers often miss tax deductions and credits that they are entitled to because they don’t file their taxes or they are unaware of the tax deductions and credits available to them.  There are also tax deductions and credits that are set to decrease or go away effective January 1, 2011.  If you don’t file your tax return you may miss out on some of these tax savings.  For instance, if you spent your hard earned money on energy efficient windows in 2010, but you don’t file your taxes you may miss out on the Residential Energy Credit, which for 2010 is 30% of your cost of eligible energy saving home improvements up to $1,500.
• You May Have a Refund Waiting – So you earned under $5,000 in 2010 and think it’s too little income to file taxes?  Well, you may have a refund waiting for you once you file your tax return.  Many taxpayers don’t realize that if you had taxes withheld from your wages then you should still file your taxes even if your income is below the filing requirement.  Even if you didn’t have taxes withheld from your wages you may be eligible for Earned Income Credit and other refundable tax credits that may afford you that unexpected refund.
• If You Owe, the IRS Has Different Ways You Can Pay and Make Arrangements – Have you been procrastinating because you’re afraid of what you tax situation may look like? Don’t be afraid!  First of all, your tax liability may not be as much as you think once you have been guided through all of the tax deductions and credits available to you.  If you are unable to pay after all is said and done, the IRS has other options for you.  You may be able to solve your debt through Installment Agreement, Temporary Delay, or an Offer and Compromise.  You may also have the option to take part in the new IRS Fresh Start Initiative.  The IRS is sensitive to what is occurring in peoples lives right now, but they just want you to at least file your return and make some type of arrangement with them.
• You’ve Had Six Months To Get Everything Together! – You should have all of your documents in order by now.  That’s half the battle.  If you don’t, you only have a little time left.  Once your documents are in order everything should be easy with the help of TurboTax, where you will be guided step-by-step through preparing your taxes.

One of the best ways to reduce your stress at tax time is to have your documents organized in one place. Instead of searching for them, your best option is usually to create a special file for your tax related documents and receipts. You can either keep a file folder for these tax records, or you can keep a digital file on your computer, by scanning in receipts and pertinent documents.

As you prepare for tax time, here are some of the documents and records you will want to keep ready:

Individuals

You have a number of opportunities for deductions and credits as a taxpaying individual. Anytime you claim a credit or deduction, you should have documentation to back it up and documentation is notoriously annoying to collect so you should start early. Additionally, you will need records proving your income. In many cases, you will receive a document from other sources, as in the case of a mortgage interest statement, or in the case of a W-2 form showing your income.

Other items of documentation that you will want to have come tax time include:

• Receipts for charitable contributions of money and goods.
• Mileage logs
• Receipts for deductible expenses (including receipts for qualified health care expenses paid for from a HSA or FSA).
• Receipts for credits, including receipts for items bought if you want to claim an energy tax credit.
• Information about investment transactions, including buying and selling information, and cost basis information, including IRA records (usually provided to you).
• Records related to your rental property.
• Records related to a home improvement project or home purchase.
• Receipts for dependent care expenses paid.

In some cases, if you don’t have the receipt, a copy of a canceled check can provide the record you need. You can usually get these from your financial institution, if copies of canceled checks aren’t included with your account statement.

Businesses

If you own a business, you will have other tax issues to deal with. You will need to make sure that your business records are separate from your individual records. Do your best to make sure that there is a defining line between personal and business tax records so that you can more easily separate them during tax time. Some of the records that you will need at tax time include:

• Gross receipts. These can include deposit slips, register tapes, invoices, 1099 forms, and receipt books.
• Records of business related purchases, including receipts, canceled checks, and paid invoices.
• You should also keep track of expense documents related to business. This can include business travel receipts, expense requests, and other items.
• Mileage logs for vehicles involved.
• Documents that help verify the assets that your business holds, including closing documents for real estate, and bills of sale. This is especially important if you have purchased equipment for your business.
• Payroll and benefits information. Keep track of what you are paying employees, and the benefits they are getting.

If you automatically keep these records in some sort of a file throughout the year, you will have them easily accessible during tax season, and a great deal of stress will be avoided. If you have a scanner, I recommend scanning all these documents and keeping an electronic version just in case you misplace that file throughout the year.

For more information on this topic, also see our Getting Organized for Tax Time blog.

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Laziness

(source)

It doesn’t take a forensics team to determine the number one reason for tax procrastination: laziness. Simply put, filling out a tax return can be time-consuming in some cases, or for some attention spans, tedious and boring. Given the choice between filing a tax return and just about anything else, many folks, in fact, an estimated 27% according to a TurboTax customer survey, readily choose the latter till the last two before the tax deadline. In a way, this is no different than most of the other important yet challenging tasks people ignore (such as exercise.)

But in another sense, laziness and taxes are an even deadlier mix. Of no other lazily avoided task can it be said that not doing it exposes you to prison time. If that isn’t reason enough to file, nothing is!

Thrill-Seeking

(source)

Interestingly, psychologists believe that some taxpayers procrastinate for the thrill of filing late. As PsychologyToday.com explains:

Some procrastinators enjoy the adrenaline “rush.” These people find perverse satisfaction when they finish their taxes minutes before midnight on April 15 and dash to the post office just before it closes.

This is roughly the same as the frantic office worker who never plans ahead and insists that they “work best under pressure.” But in both cases, they are usually wrong. In the office and on your tax return, waiting until the last minute leaves no margin for error.

Perceived Lack Of Urgency

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Another reason so many taxpayers take their time is a perceived lack of urgency. Unlike so many of the important obligations in our lives, tax filing is completely up to you. Often attempts by the IRS or other to remind you that April 18 is coming are tuned out as we focus on the important things we need to do in the immediate future. To a busy person with more pressing responsibilities, it’s easy to put tax filing into the “later” pile.

Most of the people who put off their return would never do so on their car or mortgage payment, because it would instantly damage their credit score. Lack of similar immediate consequences for tax filing may help explain why it is routinely neglected.

Availability of Extensions

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Still other taxpayers procrastinate because extensions are available. As TurboTax discussed in a blog post last year, extensions can push back your filing date by up to six months. What it does not push back is your payment date. The IRS is willing to let you slide on filing the actual return, but if you owe, expect to pay the full amount owed  by April 18.

Most people who put off tax filing because extensions are available don’t know this. They simply assume that an extension equals more time to file and pay. If this is what you believe, ask yourself why the IRS would ever do that. If true, no one would pay on time – the new tax deadline, for all practical purposes, would become October 17, 2011.

No Expected Refund

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If there’s one thing people do look forward to about tax season, it’s refund checks. Sure, a big refund means Uncle Sam got an interest-free loan on your dime, but it feels good to get an unexpectedly large chunk of change. So good, in fact, that people who might have procrastinated file well in advance to get it.

On the flip side, taxpayers who don’t expect a refund sometimes use this as a reason to wait. From their standpoint, there’s no big stash of cash waiting on the other end.

If it’s stock transactions, have no fear. I’m going to tell you four things you need to know about stock transactions and how TurboTax makes this easy. And while I’m using the term stock transactions generically, they can include bond sales and other “capital asset” sales.

First, TurboTax determines your holding period based on your purchase and sale dates and then computes the correct tax automatically. However, the first thing you need to know about stock transactions is that the gain or loss can either be long- or short-term. This refers to how long you held the investment. Short-term is a holding period of less than one year. Any holding period of longer than one year qualifies the gain or less as long-term. The holding period determines whether you get preferential tax – short term gains are taxed at regular rates (up to xx%) while long term gains are taxed at a maximum 15%.

Second, stock sales can also result in losses, which in this market many of us know quite well. While stock losses hurt, they can be somewhat beneficial because they offset stock gains and other income. The rules for netting gains and losses can be confusing, but once again, TurboTax does all this for you automatically. The other thing to keep in mind is that if after netting stock losses and gains, you have a loss, you can use up to $3000 of that loss to offset other income. Any remaining loss beyond the $3000 can be used to offset income in subsequent years. So, your financial loss today can provide tax benefits by also reducing your future taxable income. TurboTax automatically tracks this for you too.

Third, the IRS has in place diagnostic tools that match your sales to those reported by your broker. Therefore, it is important to account for all your stock transactions, otherwise you might receive one of those dreaded letters from the IRS!

Finally, the best way to overcome any concerns you may have in reporting your stock transactions is to automatically import your transactions from your broker. TurboTax does this, and supports over 100 financial institutions so it is highly likely yours participates. Importing stock transactions eliminates all data entry and ensures your reported transactions match exactly what the broker reported to the IRS. Importing is as simple as identifying your broker and then using your credentials to access your brokerage account. It takes just seconds to do. Once you try it and see the results, you’ll never turn back to manually entering your stock trades.

That’s it for stock transaction. Now it’s time to finish your tax return. Come see us for tax help next year. Get busy!

Either because they lost a job, or because they needed to make extra money, many people became self-employed for the first time in 2009. When the tax filing deadline rolled around in April of 2010, many of these first timers weren’t ready to file.

Filing your taxes can be complex enough when you just have a W-2 from a job to deal with. Throw in some 1099s, cash income, business expenses, and you really have a difficult tax return on your hands. Because of these complexities many filers chose to estimate their taxes due, pay them, and then extend the actual filing of the 2009 tax return using Form 4868.

Tax Extension Rules

The people who filed that extension gave themselves 6 more months, until October 15, 2010, to gather up their 2009 information and complete the tax return. Notice I didn’t say they could extend the payment. They should have still paid the 2009 tax bill when they filed the extension Form 4868.

If you haven’t yet made an estimated payment, then you are currently being charged interest and possibly penalties if your 2009 return ends up showing that you owed taxes. And hopefully your new small business did well enough to owe some taxes.

Keep in mind that even if you did make an estimated payment and underpaid by more than 10%, you could face interest and penalties. As a general rule, it’s good to get your 2009 return completed as soon as possible. Even if you extend you don’t have to wait until October 15th. You can file them now.

Forms Needed to File Your Extended Return

As long as you properly extended your return, there is not that much of a difference in filing your 2009 return in September or October of 2010 vs filing it back in April of 2010. You can still use many of the free or premium tax filing services that were available back in April. Break out a handy tax preparation checklist to make sure you have everything and then get started.

No special forms will be required when filing your extended return. However, when you are on page 2 of the Form 1040, you will see line 68 which says “Amount paid with request for extension to file”. This is where you will put the amount that you paid when you filed Form 4868. It’s very important to complete this so that you get credit for the payment you’ve already made.

If your new business is a simple sole proprietorship, you should be able to file everything on the Form 1040 using the Schedule C or C-EZ. Your business profit or loss gets passed from the Schedule C to the Form 1040 page 1 on line 12. If you took the steps to create a new tax entity (Partnership, “S” Corporation, or “C” Corporation) for your business in 2009, then you will have to consider additional returns beyond the Form 1040 to file your taxes. Generally speaking, partnerships will need to file a Form 1065, “S” Corporations a Form 1120-S, and “C” Corporations a Form 1120.