The Des Moines Reg1ster today recounts the sad story of the Langes, a West Des Moines couple who learned about certified mail the hard way - by losing a $7,685 refund forever. We covered this sad tale here.
The Langes lost their refund because they were unable to show they had filed for it on time - even though their accountant's records supported their claim.
There are two surefire ways to make sure you can prove you filed on time: electronic filing and certified mail.
When you file electronically, the transmitter gets an acknowledgement your return has been accepted. I'm aware of no case where the IRS has questioned the timeliness of an electronic filing.
If you file on paper, the $4.25 extra you have to spend on your certified mail receipt is well-spent. Be sure to take your package to the post office, where the postal clerk will hand-postmark your certified mail receipt, sending you away with a mighty weapon if you ever need to prove you filed on time.
Certified mail is one of our favorite topics:
While the April 15 tax deadline for 1040s is well known (April 17 this year), you may have some other April 15 deadlines. Don't neglect these:
Individual estimated tax payemnts are also due on Apriil 17th this year, as are corporation estimated tax payments for calendar year taxpayers.
Calendar year returns for partnerships, trusts and estates are due April 17.
Finally, if you filed your 2002 1040 without extending it, April 17 is the last day you can file to claim a refund for that year.
A "Simplified Employee Plan," or SEP, is an old last-minute tax-saving favorite of Self-employed taxpayers. A SEP is an Individual Retirement Account for a Self-employed taxpayer and employees. You can set up and fund these as late as the due date of your tax return - even after April 17 if your return is properly extended. Taxpayers with SEPs can deduct contributions to their SEP-IRA of up to 25% of their self-employment income.
But be careful - you can't discriminate in a SEP, so any employees of your business also have to participate. If you have more than one business, you may have to cover employees of all of your businesses. If you are by yourself, though, SEPs are easy and can be set up just by executing IRS Form 5305-SEP. You can learn more about SEPs from IRS Publication 560.
April 17 is the due date for 1040s this year. It's also the due date for funding your 2005 IRA. Whether you have a traditional IRA, a Roth IRA, or an "Education IRA" (Coverdell account), if you don't fund it by next Monday, you never can, and an important tax opportunity is lost forever.
Most tax practitioners have had some version of this conversation:
Client: I got a notice from IRS. What did you do wrong?
Practitioner: What does the notice say?
Client: I think it says I didn't file my taxes.
Practitioner: Well, did you?
Client: Well, I gave you all my stuff.
Practitioner: And I sent the return to you. Did you get it?
Client: I have an envelope from you right here.
Practitioner: What's in it?
Client: Well, a bunch of paper, and some envelopes.
Practitioner: And what do the envelopes say?
Client: Here's one addressed to "Internal Revenue Service Center." What's that for?
Returns don't file themselves. If you aren't filing electronically, get your return mailed. It's always a good idea to take paper returns to the post office and spend the extra money to send it "Certified Mail, Return Receipt Requested."
If you want to file electronically, be sure to return the e-file authorization to the preparer right away. Even if you owe, the practitioner can arrange for the withdrawal from your account to wait until April 17, so holding onto the authorization doesn't keep the money in your account any longer; it just increases the chances that you'll forget to file.
Every year it happens. After the return is filed, the taxpayer remembers that they sold some stock, or they get a corrected 1099, or they find a 1099 they forgot to give to the accountant. What to do?
It depends on what the error is.
THINGS TO CORRECT BEFORE THE DUE DATE:
If you owe a lot of money - say, more than 10% of your total tax - you should file an amended return by the April 17 due date. Otherwise you may incur late payment penalties.
THINGS TO CORRECT WITH AN AMENDED RETURN AFTER APRIL 15
If the error is small, there's less of a hurry. Your preparer will be a lot more friendly about correcting a return after April 15. If you will have an additional refund coming when you correct the error, the IRS pays interest. Let the smoke clear and file an amended return if the refund is significant.
Costs and benefits come into play here. You don't want to pay your preparer to file for a $10 refund; let it go. If it's the preparers fault, let him take it off the bill rather than generate IRS attention.
But if the refund is significant, don't be shy - file away. You have three years after the due date, so let your preparer have a few days off before asking where the amended return is.
Tax season is entering its last ten days, so we will helpfully
nag remind you of important tax items that may slip your mind in the tax frenzy.
We will start by reminding you that your tax return is due April 17 this year because April 15 falls on a weekend. Unless, of course, you live in one of the New England states that celebrate Patriot's Day to commemorate the rout of the Redcoats between Concord and Boston back in '75. Then you have until April 18.
If you don't bother to extend (Form 4868), you will be hit with a penalty starting at 5% of the amount you owe; this increases by 5% per month until it maxes out at 25%.
If you do extend but don't pay at least 90% of your balance due by the deadline, you will pay a 1/2% penalty on the shortfall, plus 1/2% for each additional month you are late. If you extend and have at least 90% of your taxes paid, you have no penalties as long as you actually file and pay up by the October 15 extended due date.
WHAT ABOUT IOWA?
Iowa returns are due May 1 this year (the usual April 30 deadline is on a Sunday). Extensions are automatic - no form needed - if you have paid in at least 90% of your taxes. If you need to add a little to get up to 90%, use Form IA-1040-V.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to