The April 17 deadline may be just hours away, but some Americans still haven’t even rounded up their W2s.
Acknowledging the tax procrastination is a national pastime, the Internal Revenue Service issued some tips and a series of videos to help last-minute filers avoid the common blunders that could delay their returns. Here is a look at the most common errors:
Misspelled name. Seems basic but tax returns will not be accepted if your name is not entered as it is appears on your Social Security card, or if the Social Security number is incorrect.
Thanks to a fluke of the calendar, the deadline to file taxes was extended until April 17th this year. While the procrastinators scramble to get their 1099s and schedule Ds in order, those who’ve already filed may be wondering when they’ll get their refund check. Our live chat on April 16 featured Andrea Coombes, the personal finance editor at MarketWatch, and Arden Dale, a Dow Jones columnist who writes about taxes and estate planning. CPA Melissa Labant of the AICPA also joined in. The chat was moderated by Janet Paskin, Digital Editor, Markets for the Wall Street Journal, formerly the editor of SmartMoney.com. Replay the event.
This time of year many Americans would like to take a swipe at the IRS. Some taxpayers even should, experts say — with their credit card.
Though paying a bill in full is the best way to avoid late charges and other hassles, credit card payments can help those struggling with the their bills to buy time – and even save money. “If you’re going to need a year or more to pay it out you could borrow on a low interest credit card and it could be a good deal,” says Gregg Wind, a certified public accountant in Los Angeles.
While not ideal, credit cards and lines of credit can help people pay the tax man by this year’s April 17 while avoiding potentially steep late payment penalties and interest charges. The IRS generally charges interest on any unpaid tax starting from the day the tax is due to the date it is paid. Currently at 3%, the interest rate is reset quarterly. And that doesn’t include late payment penalties, which are 0.5% of taxes owed a month. Between interest charges and late payment penalties, someone who is a year late in paying their taxes could see their bill increase by 9%, Wind estimates.
As many taxpayers gather their financial documents to do their tax returns, a number of unlucky filers are finding that someone else has already filed in their name — and walked away with their refunds.
For the 12th year in a row, identity theft topped the list of consumer complaints received by the Federal Trade Commission in 2011, with nearly 280,000 complaints, according to a report released on Tuesday. And a bigger chunk of those cases is tax related, with 24% of identity theft complaints being tied to tax or wage-related fraud, up from about 15% in 2010, according to the FTC.
For some victims, the fraud isn’t discovered until they hit the send button on their electronic tax returns — and get a rejection note from the IRS. Other times it takes a little longer to know something is wrong, such as not receiving a refund check. You might also receive an IRS letter saying the income reported doesn’t match their records — a sign someone else could be using that Social Security number.
Some early filers trying to track their refunds through the Internal Revenue Service’s Where’s My Refund feature are getting a maddening response: what refund?
Glitches with the online feature are leaving taxpayers without any information on when they might get their refund, or any details about their tax returns. Normally taxpayers who enter their Social Security number, filing status and exact refund amount into the tool get an update on the status of their refund, including confirmation that their return is being processed and an estimate for when the IRS expects to cut the check.
One revenue-raising strategy unveiled in President Barack Obama’s budget proposal on Monday calls for beefing up the Internal Revenue Service’s enforcement efforts. That could mean increased scrutiny on individual tax returns, especially for small business owners.
The president’s budget plan would increase the IRS’s budget next year to $12.8 billion, about $950 million more than the 2012 budget, with the goal of ramping up collections from individuals and business that are behind on federal and state taxes or that owe government loans. The bulk of this money would be part of a program to prevent tax evasion and cheating and to update the IRS’s data system, according to the proposal. The reforms call for increasing collection by more than $2 billion over the next 10 years, much of that owed to states. The enforcement program should return $5 for each additional IRS dollar spent, according to the proposal. The IRS did not respond to requests for comment.
Frequent-flier miles awarded for opening new accounts sometimes come with a big catch: taxes
Thousands of Citibank customers received notices in January saying the miles they received for opening new accounts in 2011 produced taxable income. Some customers, for instance, received a 1099 with $750 of income for 30,000 miles, the Wall Street Journal reported. The IRS confirmed they are taxable. Such bonuses are often enough to book a domestic flight or they can cover an upgrade to business class from coach. But analysts say the actual trips booked with the miles can be worth less than the amount of income reported by the credit card company. And the tax bill could cost more than the flight itself, says George Hobica, president of fare-tracking site AirfareWatchdog.com. “It might be a wash, depending on your tax bracket,” says Hobica. “I certainly wouldn’t do it.”
Taxpayers with simple returns have several new ways to file without having to pay for help.
The average cost for having an accountant prepare a Form 1040 with a Schedule A and a state tax return was $233 in 2011, up 1.7% from 2009, according to the National Society of Accountants. But the options for free tax help are growing. The Internal Revenue Service, for instance, offers Free File, a program that offers free tax-preparation software and other tools for taxpayers with low and moderate-income. Through the IRS site, taxpayers who make $57,000 or less can answer a few questions about their income, location and whether they qualify for certain credits to pull up a list of companies that offers free tax preparation software, including TaxSlayer, H&R Block and 1040.com. The IRS also offers Fillable Forms, electronic versions of IRS tax forms, for people who are comfortable calculating their own taxes.
Tax season gets into full swing today, when the Internal Revenue Service begins accepting electronically filed returns.
Once a rarity, e-filing is quickly becoming the norm: a record 100 million taxpayers filed electronically in 2011. That included 77% of individual returns filed, up from 58% in 2008, according to the IRS. A chunk of those taxpayers were do-it-yourselfers: about a third of all tax returns were filed online last year by people who did their own taxes using software, according to IRS data.
But while more people may be filing online, taxpayers still need to gather hardcopies of documents to back up their returns, says Elaine Smith, master tax adviser at H&R Block. For most people, W2 and 1099 forms, which report wages and income, should be arriving in the mail any day now.
The Internal Revenue Service commissioner is warning Congress that anticipated cuts to the agency’s funding will result in a “noticeable degradation” of services, including audits and efforts to collect unpaid taxes.
In a letter sent to legislators last week, commissioner Douglas Shulman wrote that if Congress moves ahead with its plan to reduce the IRS’s budget by about $500 million next year, the agency would have to reduce the number of workers in its enforcement department. Such cuts, he added, would lead to a 5% to 8% decrease in collection efforts, including audits, which would reduce revenue by about $4 billion.
But what sounds like good news for deadbeats could be bad for regular taxpayers. Shulman warned that the spending cuts would mean that half of the taxpayers trying to contact the agency for help would get busy signals or will “hang up in frustration.” Responses to letters, including those taxpayers trying to resolve account issues, could be delayed up to five months, he wrote, and small businesses could have more trouble reaching the IRS to work out a payment plan.
The Tax Blog brings together a team of award-winning tax journalists from the Dow Jones network and around the web to examine the tax issues, changes and legislation that affect families, investors and small business owners. Our contributors include Tax Report columnist Laura Saunders (WSJ), Tax Guy columnist Bill Bischoff and senior reporter Jilian Mincer (SmartMoney.com), retirement-focused reporter Anne Tergesen (WSJ), wealth management writer Arden Dale (Dow Jones Newswires), TaxWatch columnist Eva Rosenberg and personal finance reporter Andrea Coombes (MarketWatch), and reporter Alyssa Abkowitz (SmartMoney). They’ll provide the latest news and insight, mine the tax code for tips and loopholes, and answer your questions about tricky tax situations. Contact the The Tax Blog with ideas, suggestions or tax questions at email@example.com.