February 2003
Tax Time 2002 - Getting Started
Amy E. Gibb, MBA, CFP
I love those news stories on April 15th, showing people running to the post office at 11:59 pm, in order to file their tax returns at the last minute. They drive up the to curb at the post office, jump out of their cars to the cheers of waiting reporters, and rush in the door just before closing. These people don't stress about the details in life and seem to be enjoying the drama of waiting until the deadline. If drama isn't your goal and the details of life do weigh on your mind, here are a few tips to help you along your way to a tolerable tax time.
Do-It-Yourself, or Get Help with your Taxes? With the advent of tax preparation software, and home computers, doing your own taxes has gotten easier, and is less susceptible to errors and missed opportunities. If you enjoy working on your computer, like numbers and have a pretty uncomplicated financial life, you might give this a try. Tax preparation software can be ordered online or purchased at most office or computer stores for $28 and up. You will invest from 2 to 10 hours in preparing your taxes, but you will understand more about your financial life and how taxes work after you are done. Don't be afraid to revert to a tax professional if you find yourself over your head once you get started.
If you hate numbers, details and dealing with taxes, find yourself a tax professional
and make an appointment today. Having an appointment will ensure your tax professional
can get your taxes done by the deadline and it will discourage you from waiting
until the last minute. For a referral to a tax professional, ask your friends,
co-workers or the Chamber of Commerce. The cost will run from $100 to several
thousand dollars depending on where you go, complexity of your return and how
organized you are. Ask for an estimate of cost before you make your first appointment
so you will know what to expect. Find a tax professional who will explain your
return to you when it is completed. If you make your appointment early in the
season, you are more likely to get this added service if you ask for it.
Consider filing early. Most of the information that you need to file your taxes
needs to be sent to you by January 31st. With many people receiving tax refunds
every year, why not get your money sooner than later? Even if you owe money,
you can complete your return early and wait to mail it and your check until
early April. Don't forget about electronic filing. Electronic, or email filing,
will use no paper and postage, provides you a confirmation of receipt, results
in fewer data entry errors by the IRS and provides you a quicker refund. Electronic
filing has received mixed reviews from tax professionals but soon will be required
by the IRS.
Running late and feeling overwhelmed? You can extend filing your return until as late as October. This is often your only option if you wait until late March or early April to contact your tax professional. Extensions are easy and painless and require a simple one-page form post marked by April 15th. This form can be downloaded from the IRS web site. The trick is; the IRS wants all the money you owe, by April 15th, included with your extension form, if you want to avoid additional penalties and interest charges. You need to figure you how much you will owe without having completed your return. How the IRS thinks this is possible is beyond me but it is the rule.
Your tax professional can help calculate how much to send along with your extension request. If you are doing this yourself, you will have to make an educated guess of how much you still owe, if any. As a general rule, pay as much this year as you did last year, unless your taxable income has changed dramatically. A flip of a coin, reading the stars, or checking to see if you have any money in your savings account are all probably equally accurate ways of determining how much you will owe. If you don't pay enough, you will owe some extra money when you file your return, for taxes, penalties and interest. If you have over paid, the IRS will have use of your money for a couple more months. Be careful not to get behind on paying the IRS. Back taxes can accumulate to the point that it is difficult to catch up. For this reason, I recommend paying as much as you can with your extension to avoid getting caught short later on.
Don't forget about investing in an IRA, Individual Retirement Account, at tax time. You can now invest as much as $3,000 per person. Ask your tax professional if you qualify and to explain to you the benefits of this investment. Or, follow the information provided by your tax preparation software. IRAs are a great savings vehicle and can help you save for retirement and save on taxes. If you file early, you can use your tax refund to help you fund your IRA, if it arrives before April 15th.
What if you have missed the deadlines for extensions, payments, and filing
tax returns for this year or years in the past? I recommend that you go directly
to a CPA or Registered Agent, lay your cards on the table, and get help fixing
your problem. If not addressed, problems with the IRS don't go away, they just
get bigger. You would be surprised how many people who haven't filed returns
for years, actually would have gotten money back every year and will lose their
claim to this money if they wait to long. If you owe, it is a different story.
The IRS doesn't allow you to get out of paying taxes, even if you have filed
bankruptcy. They will sometimes consider negotiations and reduced settlements.
This is where having professional representation from a CPA or Registered Agent
is so important if you have made mistakes in the past.
So how will taxes go for you this year? As I gaze at the stars, I see you completing
your taxes in the next couple weeks, receiving a refund check which you invest
in an IRA, and I see you laughing at all those people on the news that wait
until April 15th to file their taxes.
Amy E. Gibb, MBA, CFP
President
Money $ense
Amy@MoneySenseSolutions.com, www.MoneySenseSolutions.com
303.494.5362
Financial Advising for individuals and business owners
"Money isn’t everything, Managing it is"
Amy E. Gibb, President of Money $ense and Money Sense Bookkeeping helps individuals and businesses get ready for tax season. She may be contacted at 303.494.5362, or for more information go to www.MoneySenseSolutions.com.