For years on April 15, I made a solemn promise to myself: next year will be different. I typically made this promise around 11:45 p.m. while sitting in my car in line at the post office to drop my return into a large bag, held by a postal worker who was no doubt cursing me for making him work late. Police directed traffic, so I kind of felt like a big deal.
I’m happy to say those days are behind me. Now I make the same solemn promise on April 15 at 11:45 p.m. in front of my computer as I eFile. One of the problems with my last-minute approach to tax preparation is that it increases the chances I’ll make a careless mistake on my return. I’ve more than once found a receipt for a charitable deduction I neglected to include on Schedule A. To all those procrastinators out there, here is a list of tax tips to help you make sure you’ve got your bases covered before your late-night filing:
1. Keep your tax records. As you’re getting all the paperwork together for your taxes (and maybe wishing you’d devised a better filing system back in 2012), remember to keep it. If you get audited, for whatever reason, you’ll need the receipts and other paperwork you used to file your taxes.
You don’t necessarily need to keep everything completely organize; just stick a copy of your completed tax returns in a large envelope with all the W-2s, 1099s, charitable giving receipt, and other paperwork you used to prepare your taxes. That way, if the IRS comes calling, you’ll have everything you need to survive the audit.
How long should you keep the paperwork? According to the IRS, if you’re not mis-reporting income or filing a fraudulent return (in which case, you’re probably not going to listen to the IRS, anyway), you should keep your tax paperwork for at least three years. However, if you claim a loss from securities or bad debt, keep your records for seven years. If you paid employees, keep those records for four years.
2. Contribute to an IRA. One way to save money on your taxes right now is to contribute to a tax-advantaged Individual Retirement Account. If you qualify for a deductible IRA, you can generally make your 2012 contribution on or before April 15. Use this strategy to reduce your taxable income by as much as $5,000—or as much as $6,000 if you’re older than 50.
If you decide to reduce your tax bill—or boost your refund—by contributing to an IRA, tell your financial institution you’re making a 2012 contribution. Otherwise, they may report to the IRS that you made the contribution for 2013, which won’t help you any on your 2012 tax returns.
3. Put money into an HAS. If you’re one of the many Americans on a high-deductible health insurance plan, you can also use a Health Savings Account (HSA) to reduce your tax bill. A qualifying high-deductible plan must have a minimum individual deductible of $1,200 and a minimum of $2,400 for family coverage.
With a qualifying health plan, you can add up to $3,100 to an HSA or up to $6,250 to an HSA for a family policy. Remember to tell your HSA provider you’re making a contribution for 2012. Again, your contribution will reduce your taxable income, leaving you owing less or getting back more. And, of course, this option leaves you with money in the bank to pay for future health expenses.
4. File even if you can’t pay or need an extension. If you’ll owe the IRS money you can’t pay right away, file your taxes anyway. The IRS charges penalties for taxes that aren’t paid by the April 15th deadline, but the penalties are much steeper if you don’t file your taxes at all.
Right now, the penalty for not filing a return is 5 percent of the total amount of tax due for every month you fail to file. If you file but can’t pay right away, the penalty is just 0.5 percent of your tax bill for every month you don’t pay.
On that note, if you’re absolutely unprepared to file your taxes by April 15th, you can file an extension. Keep in mind, however, that an extension does not extend the due date for any taxes you owe. You can pay outstanding taxes with the extension. If you don’t pay the taxes by April 15, you’ll pay the 0.5 percent per month penalty (rather than the 5 percent per month penalty) until the taxes are paid.
5. Double check itemized deductions and credits. If you’re itemizing your deductions, be sure to double check all of the potential deductions you can get. In fact, if you think there’s even a chance that you can get more credits or deductions by filing an itemized return, consult a tax professional. Even if you don’t itemize, you may be entitled to a bevy of tax credits contained in the tax code. The list of potential credits and deductions includes such options as education credits, childcare credits, adoption credits, saver’s credits and charitable contributions.
6. File online. Those who file online get a tax return more quickly. Plus, tax forms filed online tend to be more accurate, and your information may be safer when you submit it through a secure online transmission. You can file online for free with the IRS Free File software—though if your taxes are at all complicated, you may want to use more advanced software or see a tax professional.
Rob Berger is an attorney who represents auditors in SEC and PCAOB regulatory proceedings and is the founder of the popular personal finance blog, the Dough Roller, where he covers topics ranging from investing to painless ways to save money.