It’s Never Too Late To Do a Better Job On Your Taxes.

Generally speaking, there are three “waves” of tax filers. The first contains the people with W-2 jobs, kids and daycare and they have had taxes withheld that when refunded are a big part of their income. They generally file in late January and early February, as soon as possible so they can get their refund, and who could blame them? That job is done, those folks have filed.

The second wave contains people with more complex assets and it’s a flip of the coin for them, sometimes they owe and sometimes they get refunds.  So, they still want to file as soon as possible, but when the return is done it’s like waiting for cancer test results, they say, “well, was it good news or bad news?”.  That wave is now ending also for this tax season.

The last group are the people who owe more taxes.  They wait as long as possible to file, since “why be in a hurry to face the executioner?”.  They are usually filing longer and/or more complex returns.  They wait until there are two weeks plus or minus left until the regular filing deadline, but they don’t want to file an extension, so they are usually in a mad rush. These, in the tax preparation world, are the most dangerous returns. They are complex, and preparers are fatigued, so error rates are creeping up (to err is human after all).  Fifteen hours days for 8 weeks is not any easy mind marathon to run.  Usually these taxpayers have underpaid estimates, under-withheld and owe more than $1,000, so that means additional interest and penalties.

What’s the point of these groups of filers?  Hopefully, people in the third group are reading this and saying to themselves, “yup, that’s me” and they will take this friendly advice from people in the know. That is, with very few exceptions, GO ON EXTENSION and DO NOT ATTEMPT TO FILE NOW!

Why do we say this, because of the facts.

• Your assets are more complex.
• Your preparer is tired!
• You owe, so why be in a hurry?
• Just go open and fully fund IRAs just in case.

Here is what to do, file an extension which is free and easy to do.  Let the preparers get some rest and then file in June.  Your preparer will do a better job and you will get a better result.  Open an IRA, since you can’t do that after the regular filing deadline.  It might end up a nondeductible IRA, but if so, you can make that a Roth IRA later.

The MOST IMPORTNAT thing to realize is that filing extension to submit your tax return does NOT give you an extension to send any taxes due.  If you were going to file on time you would have sent a check with the return, so send the check with the extension and send it registered mail, return receipt requested (or if filed online use an IRS approved third party vendor and make an online payment).

BUT HOW DO YOU KNOW WHAT TO SEND IF YOU HAVEN’T FINISHED THE RETURN (which is why you are in a rush)?

You don’t have to know the exact amount.  Just send in 110% of whatever you owed last year (less what has already been paid in).  This will qualify you for the Safe Harbor rule, an IRS accepted standard that will allow you to avoid late payment penalties.  You’re going to file in June (a few weeks from now), so you’ll get any overpayment back quickly.  If you had a very large anomaly event (sold a business, won the lottery ) and are going to owe double or more than last year, you will not be able to rely on the 110% Safe Harbor trick, so file on time.

One last thought, if while on extension you take the time to go see a qualified tax planner, you might be able to lower that tax bill as well.  Most preparers are not planners and may miss many recommendations that a planner might have made.