Follow These 4 Last-Minute Tax Tips and Avoid Huge Hassles
With just a week to go until the deadline for getting your 2018 tax return done, it's time to start thinking about last-minute moves you can make. Whether it's looking to save some more money on your taxes or just trying to minimize the damage, there are some simple things you can do to put yourself in the best possible position to finish tax season strong.
1. How you can get an extension
Many people don't understand just how easy it is to get extra time to file your tax return. Although the official due date is April 15, you can get six months longer to complete your return automatically. All you have to do is file Form 4868 to claim your automatic tax extension until mid-October.
There's one thing you have to keep in mind with extension requests, though: They don't give you any extra time to pay your tax. If you owe tax and don't pay it along with your Form 4868 submission, then you'll start to incur late-payment penalties that amount to 0.5% for every month or portion of a month that you're late. It's therefore important to have at least some idea of what you might owe, so you can avoid unnecessary penalties.
2. Why trying to flying under the radar won't work
A surprisingly large number of people get to this point during tax season and start thinking about whether they could just get away with not filing any tax return with the IRS. That's especially true for those who still owe money on their taxes and don't necessarily want to highlight their problems by filing a return that includes a tax amount that they can't pay.
There are two reasons why this is a bad idea. First, the IRS gets information returns from most primary sources of income, including employers and financial institutions. If you don't file a return, the IRS will cross-check those other records and realize immediately that you should have done so. That can get you into far worse trouble.
Moreover, the financial penalties for failing to file a tax return are much harsher than those for failing to pay. The penalty for failing to file is 5% of your tax liability for every month or part of a month that you're late. That's 10 times greater than the penalty for failing to pay on time, and given how quickly it adds up, you're better off filing -- whether you do so now or get a legitimate extension and wait until October.
3. It's not too late for IRA and HSA tax savings
Most tax breaks for the 2018 tax year were no longer available once Dec. 31 came and went, but there are still a couple of things you can do. Making a traditional IRA contribution can let you set aside up to $5,500 for those who aren't yet 50, or $6,500 for those 50 and older, and if you meet the income requirements, you can generally deduct the amount you contribute from your gross income. You have until the April 15 deadline to make an IRA contribution for the 2018 tax year.
Similar breaks are available for those who can use health savings accounts to set aside money for medical expenses. You have to have a qualifying health-insurance plan to be able to set up an HSA, but if you qualify, you can contribute up to $3,450 for a single plan or $6,900 for a plan that offers family coverage. Contributions are also tax-deductible.
4. Get an advantage by e-filing
Finally, filing electronically can give you some big benefits over a paper return. Perhaps the most important for late-filers is that you'll get an acknowledgment from the IRS that you've filed your return soon after you submit it, eliminating the uncertainty involved in mailing a paper return.
But there are other advantages as well. Typically, preparing e-filed returns involves using a service that will do at least some basic math checking, preventing silly errors that can cause your return to get flagged. In addition, the IRS handles the processing of e-filed returns more efficiently, and you'll generally get a refund back more quickly than if you file a paper return.
With these four tips, you should be able to navigate the last week of tax season without too much stress. Whether you finish up now or file for an extension, knowing these four things will make getting your taxes done go much more smoothly.
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