As tax-filing deadline approaches, experts help with timely reminders
Procrastinators, your deadline is near: There are only six days to file your 2006 tax returns.
Here are some tips to help you avoid getting a notice from the Internal Revenue Service and maybe even get you a couple of extra dollars back in returns.
The first thing to remember for this year's federal return is a tax refund many people aren't claiming even though almost every taxpayer is entitled to it.
According to IRS spokesman Michael Devine, 30 percent, or 10 million early filers, did not claim the Telephone Excise Tax refund, which can add anywhere from $30 to $60 or more to your refund check.
"For Kansas, so far we've seen about 152,000 returns that didn't request a refund. That means that these folks have missed out on at least $4.5 million in refunds," Devine said.
More than 159 million individual taxpayers, businesses and nonprofit organizations will be eligible to receive part of the approximate $13 billion dollars in refunds from an old long-distance tax introduced in 1898 as a "luxury" tax to help finance the Spanish American War, a war which started and ended that same year.
On May 25, 2006, after 108 years and five court battles later, the IRS announced it would stop collecting the tax, and in August it announced it would refund standard amounts to customers. The standard refund amount depends on the number of exemptions taxpayers claims on his or her federal tax return.
A taxpayer with one exemption is allowed a standard $30 refund, two exemptions $40, three exemptions $50 and four exemptions $60.
To receive more than the standard amount of the refund, taxpayers must have long-distance telephone records for the 41-month period between March 2003 and July 2006.
But remember, the refund is not just for land line users. Devine said cell phone users and even Internet phone users may be eligible because the method of transmission does not affect the tax refund.
If you were an early bird and have already filed your tax return, but forgot to file for the excise tax refund, there is no need to worry. Devine said taxpayers can still take advantage of this one-time refund by filing an income tax amendment, Form 1040-X.
In a newsletter circulated around the National Association of Enrolled Agents, a trade group for tax-preparation professionals, one of the most common mistakes was not remembering to sign a return or transposing Social Security numbers.
To be sure taxes get prepared properly, Cathy Bowen, president of Plus Accounting and member of the NAEA, suggests filing taxes electronically.
"It speeds up your refund, and if you owe money you know that the return has made it there safely," she said.
Bowen also said filing electronically cuts down on the errors because it has built in checking devices that catch common errors. Electronic data go directly into the IRS computer system, ready to be processed, eliminating the potential for errors that accompanies manually entered data.
About 95 million taxpayers are eligible to use Free File as a way of filing their taxes electronically. Free File started in 2003 as a way for moderate to low-income taxpayers to file their taxes online for free.
Devine said using Free File could cut your chances of making a mistake to less than 1 percent, much less than the 20 percent chance of mistakes from paper filing.
"For the most part the software on Free File is exactly what you can go buy in the store," Devine said.
And with direct deposit, Devine said electronic filing could have your refund back to you in less than two weeks.
According to Devine, another benefit to filing electronically is getting the most up-to-date tax forms. For example, Congress extended some legislation including the state and local general sales tax deduction, higher education tuition and fees deduction and educator expense adjustment to income in December. Those laws had expired before the 2006 tax forms were printed in November and did not make it into the forms.
And, there is no need to wait until the last minute to file electronically if one owes money to the IRS. Filing electronically gives taxpayers the option to withhold payment until the April 17 deadline -- even if they file before that date.
Bowen also said residents should be doubly sure about collecting and claiming all 1099 income forms, especially for retirees who may receive money from multiple pensions or other retirement money. If a person fails to report any income, the taxpayer could face penalties and interest on any taxes due.
Change of address/name
Devine said the IRS has completed its annual undelivered refund check review and found more than $377,000 in unclaimed taxes was due to 535 Kansas taxpayers all because the IRS was not able to deliver their check.
"A lot of time people move and they don't tell the post office. The checks go out and the checks come back," he said.
The post office will not forward Department of Treasury checks, but it can forward IRS letters. Once the check is returned to the IRS, an IRS employee will try to find out the reason for the returned check and will then issue out a letter asking the taxpayer to contact the IRS.
Taxpayers can visit irs.gov and click on "Where's My Refund," to see if they have any refunds waiting for them or to fill out a change-of-address application.
In addition, they may file Form 8822 to change their information.
Earlier this month, the IRS alerted taxpayers about possible Internet scams involving fraudulent e-mails.
"Right now there are a lot of people claiming to be the IRS and they are trying to scam you," Devine said. "When the IRS contacts someone for the first time it will be by mail."
Devine said people should be cautious if they receive an e-mail claiming to be the IRS, especially if the e-mail asks for social security numbers, bank information or PIN numbers.
"Anytime anyone says they are representing he IRS and you're not sure if it's real, you can always call the IRS and say, 'Hi, this is who I am, is the IRS trying to get a hold of me?'" Devine said.
At that point, Devine said the IRS would tell the taxpayer whether it's attempted to contact them.
If people discover a fraudulent e-mail, the IRS asks that they forward the e-mail to the IRS so it can investigate them.
This is the last year the more than 17,000 Kansans have to file their 2003 tax return. The IRS estimates that half of those who can claim a refund would receive around $579 of the $16.9 million available.
Devine said that amount did not include the tax credit for which many low-income taxpayers are eligible. The Earned Income Tax Credit has a maximum credit of $4,536 for a family with two children or more.
If the April 17 filing deadline is too much, you can file a Form 4686 and receive an extension for filing until Oct. 15.
Bowen and Devine both stressed that filing extensions does not extend the time one has to pay any taxes that are owed. Failure to send a payment could result in penalties and interest, depending on the amount one owes
"It may be cheaper to go to the bank and get a loan than have to worry about the penalties, interest or the cost to set up an installment agreement."