With football season over (though many Atlantans are still mourning the outcome) and March Madness cranking up later this month, we seem to be in a bit of a lull. Though it did not arrive with quite as much fanfare as the others, we are in the midst of another season — tax season. The Internal Revenue Service (IRS) kicked off the 2017 tax-filing season on January 23rd. Last year, more than 152 million returns were filed. What does this mean for you? While filing taxes may be old hat, below we offer six tax-filing tips to help you successfully navigate the process.
- DIY or Professional? In 2016, more than 40% of e-filed tax returns were self-prepared. While online programs and software can make the process easier, those with more complex accounting needs may find it better to call in a professional. What constitutes “complex?” This can vary, but typically anyone who receives Schedule K-1’s, has estate planning with gifting and charitable giving, or owns multiple properties (rental or personal) should consider hiring a professional certified public accountant (CPA) to avoid costly mistakes. Additionally, even those who have prepared their own taxes for years may find it helpful to hire a professional as they age. Building a relationship with a CPA at a time when your mental faculties remain sharp will provide peace of mind for you, your spouse, and children in your later years.
- The earlier the better. With this year’s filing deadline on April 18th (three days later than usual), it may be tempting to procrastinate. However, it’s best not to wait until the last minute. Many of your tax files should be made available to you at this point, so start gathering and scanning. It’s best not to be left scrambling at the last minute! For some with complicated tax filings, it may be necessary to file an extension. However, remember than an extension to file does not equal an extension to pay. Taxes owed are due in April regardless of when the final taxes are filed (see #6 for more).
- Self employed? Different rules apply. Most employees have their taxes automatically withheld from the paychecks that they receive from their employers. If you are self-employed, however, it is up to you to estimate and pre-pay taxes throughout the year.
- Remember life events. Started grad school? Bought a car or house? Refinanced your mortgage in advance of the recent rise in rates? Got married, divorced, or had a child? Don’t forget to include those in your tax filing, as they each can have important tax implications.
- Cyber security is more important than ever. According to reports, last February 700,000 unique Social Security numbers were breached when the IRS was hacked. Fortune Magazine reported that of those numbers hacked, more than 100,000 were used to try to access an E-file pin. This could mean an expected loss of $21 billion dollars to cyber fraud and fake tax returns in 2016. The IRS is now taking more security precautions, and, as a result, tax returns could be delayed. According to the IRS, “While the delays are both law and an important security measure, most refunds will be issued within 21 days.”
- File your taxes on time. Even if you are unable to pay your tax liability at filing time, do not neglect to file your returns by the deadline. The failure-to-file penalty is usually 5% of the unpaid taxes for each month that a return is late, for a maximum of 25%, whereas the failure-to-pay penalty is 0.5% of the unpaid taxes, for a maximum of 25%.
As a wealth management firm, Balentine is committed to helping you navigate tax season as smoothly as possible. If you have any questions or need recommendations for a tax professional, please contact your Balentine wealth manager.