Five tax moves for Cinco de Mayo
Wednesday, May 05, 2010
Welcome to the fifth day of the fifth month, or as we Tex-Mex loving, margarita-mad Lone Star Staters know it, just another reason to hoist a few Cinco de Mayo.
It's definitely an unofficial holiday here in Texas. And, yes, it's a pretty big celebration elsewhere.
The California Avocado Commission says that around 84 million pounds of avocados are expected to be consumed in connection with the holiday this year.
Sales of other food associated with Cinco de Mayo have spiked, too.
And don't even get me started on margaritas! Really, don't get me started. I have work to do!
But before we totally pig out and definitely before too many toasts are made, today also makes for a good unofficial tax holiday.
It's a couple of weeks past the mid-April chaos and time to do a bit of post-filing reconnaissance and, in some cases, repair.
So here are cinco tax moves you "May" want to consider now.
If you ignored the April 15 deadline, file anyway ASAP.
If you didn't but received income that triggered a W-2 or 1099, the IRS might just file for you. This substitute return is based only on information the IRS has from other sources, meaning the agency has no idea about all the exemptions, deductions and credits you might be entitled to claim.
That means what the IRS thinks you owe could be substantially more than your actual tax liability.
And that could trigger a notice from the IRS demanding you pay that amount, plus penalties and interest.
So file. Now.
And if you're getting a refund and didn't file, what the heck is wrong with you!?!
While you won't face any penalties for not filing -- those are based on the amount of tax you owe -- the IRS isn't going to automatically send out refunds to nonfilers.
In fact, if you wait too long to file and collect, you could lose your refund altogether. The IRS can keep your refund if you don't file the return claiming it within three years of its due date.
If payment problems were the reason you didn't do anything in April, go ahead and file now and pay whatever you can. Then look at ways to come up with the rest of the money.
Can you borrow the cash from your family? If you're a member of a credit union, you might be able to get a loan there. Credit card payment could work, too, as long as you don't carry the balance for too long; those interest rates can eat you up!
You also might talk to the IRS about floating you a short-term loan. If you don't need too much time to come up with the money, the IRS offers some taxpayers up to 120 days to pay in full. No fee will be charged for entering this type of arrangement.
Or you could get a longer installment payment plan with the IRS.
Yes, Uncle Sam charges fees and interest, too, but that's better than not paying at all. And in most cases where your tax bill in $10,000 or less you can't be turned down. Plus, you have some say in the terms.
To get the installment process started, call the IRS toll-free at 1-800-829-1040 or visit your local tax office.
You also can send in Form 9465, Installment Agreement Request, via the mail.
Or, if you prefer, can apply online for a payment agreement by going to www.IRS.gov then using the pull-down menu in the "I need to" box (right side of the page) and selecting "Set Up a Payment Plan."
Complete your extended return. Just because you got six extra months to file your 1040 doesn't mean you have to wait until Oct. 15 to do so.
The IRS will gladly accept your tax material now, before the rest of the 10 million or so procrastinators put it off once again to the very last minute.
Be sure to check out these final filing tips. Most are as relevant now as they were three weeks ago.
And remember that the IRS is still accepting electronically filed returns, both via commercial tax service providers as well as through its Free File program.
Set up a recordkeeping system. When you get ready to file your return next year, this will save you time and could save you money.
By having a system in place now, you can put all relevant tax documents, receipts, records, etc. into their appropriate filing place. Then when you start to fill out your 2010 Form 1040, you'll have all that information right at your fingertips.
Even better, when you start looking at the material you filed throughout this year, you'll be reminded of tax breaks you want to make sure to claim.
Devise a bunching strategy. This will be much easier thanks to your new commitment to timely and accurate recordkeeping.
Some legitimate tax breaks get wasted because your expenses must exceed a certain percentage of your adjusted gross income.
By tracking these tax-related expenditures throughout the year, you'll be able to see just how many you have and which ones are close, as the year winds down, to reaching the IRS deduction threshold.
If you discover that you're going to be close, your bunching strategy can make sure you take steps to get there.
A little extra tax salsa: Finally, if you also must file with your state, these tips apply to those returns, too.
There. That wasn't too hard.
Now treat yourself to a yummy bowl of guacamole and a few 'ritas. You earned it!
Numerals excerpted from Courtney's Portfolio
- Cinco financial lessons
- Cinco ways to save
- Tax Carnival #53: Cinco Tax Celebración
- Bunching your deductions
- Time for tax recordkeeping
- Don't forget your Daily Tax Tip!
- Don't forget your Weekly Tax Tip!
- State Tax Departments
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