So it is tax day, this year on April 17 due to a Monday Emancipation Day holiday on April 16. But you haven’t filed a return, or asked for an extension. If you have asked for an extension, you might not have paid the estimated taxes due. Any of those things could bode badly for your pocketbook and anxiety levels.
Ester Ainsworth, a volunteer with the VITA (Volunteer Income Tax Assistance Sites) program that provides free help filing tax returns for people making $50,000 per year or less, said the first step should be to file for an extension.
“It is very important to file to get that extension because you want to avoid any penalties that will be assessed if you owe money,” said Ainsworth, who is evening coordinator at the VITA site at the Jackson Medical Mall. “A $100 bill can turn into $250 very easily. If you don’t owe anything, that is fine. But you still need to file your taxes or ask for an extension. There is a penalty for not heeding that.”
Ainsworth also cautions people to be sure to use someone who is reputable and knowledgeable to help prepare your taxes. Volunteers at VITA are trained by the IRS to know what credits people are eligible for — and those they aren’t.
“This year we have seen some scary, scary situations,” Ainsworth said. “Some people will try to do their taxes themselves. They may go online with free tax services. But if you have never done that before and don’t understand where things go, that could get you in trouble with the IRS. Generally once the IRS picks up on a red flag, that may generate an audit. Part of the reason we have the VITA program is not only to help people prepare taxes at no charge, but we can also point out red flags.”
These are some difficult economic times for many people dealing with underemployment or unemployment, and challenges like medical bills. But ignoring filing or a tax bill can multiply the problems. And arrangements can be made to pay the tax bill in installments.
Ainsworth, whose day job is zoning administration for the City of Jackson, said one of the more common problems she has seen is that some people have gone to tax preparers who have given the taxpayer credits they aren’t eligible to claim. Another big issue is some people are getting a 1099 form, which indicates the individual is self-employed, when they should be getting a W-2.
“A 1099 form says you are self employed and responsible for paying all the taxes that are related to that self employment,” Ainsworth said. “If you go to work on a schedule, and are under the direct supervision of someone else, you should be getting a W-2. You can be missing out on Social Security benefits if you get a 1099.”
A common misconception is people thinking they can file as head of household, which has a higher standard deduction, when they don’t have dependents. Some people think they are itemizing when they are not. And many people fail to keep support documentation.
“Make sure you have something to substantiate what you are claiming,” Ainsworth said. “Once you get your taxes done, get that information and put it with your return. If you ever get audited, you have to prove you can legitimately claim anything on that return. That is a mistake a lot of people make. They absolutely don’t keep good records.”
Another mistake is not reporting all your income. No matter how insignificant, you need to report it.
VITA volunteer Ira E. Murray, who is also vice president of community impact, United Way of the Capital Area, said a lot of people wait until the last minute to get help with their taxes.
“We probably get anywhere from10 to 15 percent for the total year in the last couple of days,” Murray said. “I think a lot of people are afraid they owe, or they know they owe. They put it off until the last minute because they don’t want to have to pay early in the tax season. That is a misconception. No matter when you file, you still have until the last day to make your payment arrangement. You can file in February and still don’t have to pay until April. My advice is to file as soon as possible because if you do owe, the longer you wait, the more interest and penalties you will owe. If you think you are going to miss the deadline, go ahead and file for an extension as quick as possible. That is free. At least that way you save yourself some of the penalties.”
It isn’t always just procrastination that keeps people from filing by the deadline. Sometimes information is missing. The extension gives up to six months to get all the paperwork together.
Things aren’t always as bad as people suspect. Murray gets a few folks at the end of filing season who have put off doing their taxes because they expected to have to pay in — but instead are getting a refund.
“That feels good when we can put a smile on someone’s face at the end of tax season when they are really stressed out,” Murray said. “I encourage people to take advantage of our free services. All our volunteers are trained through the IRS. They can find all the credits people file for and make sure they maximize their return. We save people literally hundreds of dollars when they come to us.”
What is the biggest deduction people miss? About 20 percent of people eligible for the Earned Income Tax Credit fail to file for it. Murray said that is a big issue because it can be a credit of up to $5,700.
While most of the VITA sites in Jackson and elsewhere in the state will close after the filing deadline, some will remain open. You can call 211 from anywhere in the state to find out the closest VITA site that is still open.
Taxpayers making less than $57,000 a year can use a program called Free File that provides free online software to do taxes and e-file for free. See the website www.irs.gov/freefile. Free File is a partnership between the IRS and leading tax software providers who make their brand-name products available for free. The software automatically does math calculations and prompts you to find the tax breaks you’re due.
Often people who fail to file tax returns are missing out on a nice refund. For example, it is estimated that 9,900 people in Mississippi who failed to file a tax return in 2008 are owed a collective total of $8.2 million. Electronic filing isn’t allowed except with the current year taxes. For previous years such as the 2008 return, a paper return must be submitted. Forms can be downloaded from the Internet.
The IRS recognizes many people find this time of year stressful. Here are some tips that may help:
Don’t wait until the last minute, you’re prone to make mistakes.
Use www.irs.gov for answers to your questions or to track your refund.
Use Free File, there’s a free option for everyone.
Don’t panic if you can’t pay. You can arrange for a payment agreement at www.irs.gov.
If you can’t make the April 17 deadline, use Free File to request an extension and make a payment if needed.
Taxpayers need to present the following items to have their returns prepared:
>> Photo identification.
>> Valid Social Security cards for the taxpayer, spouse and dependents.
>> Birth dates for primary, secondary and dependents on the tax return.
>> Wage and earning statement(s) Form W-2, W-2G, 1099-R, from all employers.
>> Interest and dividend statements from banks (Forms 1099).
>> A copy of last year’s federal and state returns, if available.
>> Bank routing numbers and account numbers for direct deposit
>> Other relevant information about income and expenses.
>> Total paid for day care.
>> Day care provider’s identifying number.
>> To file taxes electronically on a Married Filing Jointly tax return, both spouses must be present to sign the required forms.
Penalties: Generally, interest is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is determined quarterly and is the federal short-term rate plus 3 percent. Interest is compounded daily. If you file a return but don’t pay all amounts shown as due on time, you’ll generally have to pay a late payment penalty of one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid from the due date, until the tax is paid in full or the 25% maximum penalty is reached. The one-half of one percent rate increases to one percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy. For individuals who file by the return due date, the one-half of one percent rate decreases to one-quarter of one percent for any month in which an installment agreement is in effect.
If you owe tax and don’t file on time, the total late-filing penalty is usually five percent of the tax owed for each month, or part of a month that your return is late, up to five months. If your return is over 60 days late, the minimum penalty for late filing is the smaller of $135 or 100 percent of the tax owed.
BEFORE YOU GO…
… we’d like to ask for your support. More people are reading the Mississippi Business Journal than ever before, but advertising revenues for all conventional media are falling fast. Unlike many, we do not use a pay wall, because we want to continue providing Mississippi’s most comprehensive business news each and every day. But that takes time, money and hard work. We do it because it is important to us … and equally important to you, if you value the flow of trustworthy news and information which have always kept America strong and free for more than 200 years.
If those who read our content will help fund it, we can continue to bring you the very best in news and information. Please consider joining us as a valued member, or if you prefer, make a one-time contribution.Click for more info