More On Tax Planningfrom The Advisor's Professional Library
- IRAs: In General Individual Retirement Accounts are highly popular tools for contributing funds that grow on a tax deferred basis. Depending on the type of IRA, the accumulation can be tax free.
- Cafeteria Plans The income tax treatment of cafeteria plans is key to their popularity. Learn how to maximize the tax benefits of these “flexible benefit plans”.
The IRS has good news and bad for millions of American taxpayers. Well, maybe mostly bad. The agency is reminding taxpayers that their automatic extensions to file (and in some cases pay) taxes expire October 15th, 2012. That’s the bad news. The somewhat good news is that the IRS is urging taxpayers to double check their returns for possible overlooked tax benefits. Other good news is that taxpayers can file their returns electronically using IRS e-file or the Free File system, and have refunds deposited into their accounts.
The IRS noted that many of the more than 11 million taxpayers who requested an automatic six-month filing extension this year have yet to file. Though October 15th is the last day for most American taxpayers, some still have more time, including members of the military and others serving in Iraq, Afghanistan, or other combat zones. Such individuals typically have until at least 180 days after they leave the combat zone to both file and pay any taxes due. Also, people with extensions in parts of Louisiana and Mississippi affected by Hurricane Isaac also have more time, until January 11th, 2013, to file and pay.
Before filing, the IRS encourages taxpayers to see if they qualify for often-overlooked credits and deductions, including:
- Benefits for low-and moderate-income workers and families, especially the Earned Income Tax Credit.
- The saver’s credit, claimed on Form 8880, for low-and moderate-income workers who contributed to a retirement plan, such as an IRA or 401(k).
- The American Opportunity Tax Credit, claimed on Form 8863, and other education tax breaks for parents and college students.
For unemployed workers who filed Form 1127-A, and qualified to get an extension to pay their 2011 federal income tax, October 15th is also the last day to pay what they owe, including interest at the rate of 3% per year, compounded daily. Doing so will avoid the late-payment penalty, normally 0.5% per month.
Taxpayers can e-pay what they owe, either online or by phone, through the Electronic Federal Tax Payment System (EFTPS), by electronic funds withdrawal or with a credit or debit card. There is no IRS fee for any of these services, but for debit and credit card payments only, the private-sector card processors charge a convenience fee. For those who itemize deductions, these fees can be deducted on Schedule A, Line 23.
Taxpayers with extensions should file their returns by October 15th, even if they can’t pay the full amount. Doing so will avoid the late-filing penalty, normally 5% per month, that would otherwise apply to any unpaid balance after October 15th. However, interest and late-payment penalties will continue to accrue.
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