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Taxes

In case you missed the memo and forgot to put the cover on your TPS reports today is the 15th of April and your taxes are due TODAY! Unless you are filing for an extension you are going to have to get your stuff together today and get it done. You shouldn’t be in the this situation but if you are I have compiled some tips to make next years tax season go that much easier.

Stay Organized

This goes for just about anything you are trying to accomplish in life but with your taxes it can be a life saver. As you receive your documents in the mail you should have been filing them all together in a folder so you could easily locate them. If you didn’t do that, do it now. Get everything together and place it in a folder so you can easily pull them out as you file your taxes. Once you complete your taxes print out a copy of your return and place it in the folder. File that folder away for next year.

Start Earlier

Once you get the main tax documents you need there is nothing preventing you from getting started on your return early. Services like TurboTax, and H&R Block allow you to start your return and get all of the information in without submitting it. Once you are ready to file you can send the electronic copy to the IRS and that is when you pay. You don’t have to wait for everything to get cracking on your return.

File early, Pay on the 15th

You can actually complete your return and if you owe money you don’t have to pay until the 15th. This combined with filing early can help offset the impact of a taxes owed. If you get it all done in February you have two months until you have to pay so that is two months to save up. Of course if you know you are going to owe you may want to start saving a little earlier than that.

File Online

In the age of cloud computing you don’t really need to get some fancy software to file you taxes anymore. All you need to do is look to the internet. Services like TurboTax, and H&R Block to file your taxes. These services provide you with what you need for most tax situations and save you the hassle of installing software or visiting an accountant.

Seek Help

If you are waiting till the last minute because you just don’t know where to start or you have a complicated tax situation then seek help. You need to check your ego at the door and find someone who can guide you through it and make sure you don’t mess it up. You know what you are capable of so don’t try to exceed your level of expertise.

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This is a guest post by Manny Davis. Manny is a tax accountant and President of Back Taxes Help, LLC, a tax resolution firm that assists taxpayers in resolving major tax problems and file late taxes. Feel free to subscribe to their tax blog today.

The April 15th tax filing deadline is approaching for Federal and State taxes. If you cannot make this deadline, or you feel you need a tax extension for other reasons, you can obtain a six-month extension automatically. This essentially will give you until October 15th to file your taxes. Before breaking down the steps to follow in order to request a filing extension, lets get a better idea of why you would file a late tax return or file an extension in the first place.

Why Would One File A Tax Extension In the First Place?

Many people may file a tax extension this year because they may want to take advantage of the homebuyer tax credit, reverse an IRA conversion gone bad, or because they simply cannot make the deadline due to unforeseen events.

Unexpected Events

One of the reasons the IRS provides a tax filing extension is because they understand that sometimes deadlines cannot be met due to unintended events. Maybe you experienced a natural disaster, a death in the family, a serious illness, prolonged unemployment, incarceration or any other unexpected event which would have made meeting the April 15th deadline difficult.

You Need To Reverse A Traditional IRA to Roth Conversion

Many taxpayers may have converted a Traditional IRA to a Roth IRA in 2009. If you did convert your traditional IRA, you are expected to pay taxes on that conversion. However, what if since the conversion your Roth IRA has significantly lost value? Why should you pay taxes on money that is not there anymore? The good news is that you would not have to pay taxes on the conversion as long as you reverse or “recharacterize” the conversion before October 15th, 2010 (if you converted it in 2009). Make sure you submit the proper documentation to the financial institution that helped you with this conversion. Working with a tax professional here is in your best interests here if you decide to go through with this recharacterization.

You Want To Take Advantage of the Home-Buyer Tax Credit

In 2008, the home-buyer tax credit was created as part of the Housing and Economy Recovery Act. Then in 2009, the American Recovery and Reinvestment extended the credit as long as a home-buyer purchased before December 1st. It was once again extended to April 30th, 2010. You can qualify for a tax credit if you sign a contract on or before April 30th, 2010 with a closing on or before June 30th, 2010. Therefore, taxpayers who want to take advantage of the tax credit on their 2009 tax return because they are closing after April 15th would have good reason to request a tax extension. Realize that you can claim this tax credit on your 2010 tax return if you are okay with giving the IRS an interest-free loan. Make sure you check the income level restrictions on claiming this tax credit for married and single filers.

Okay, So How Can I Get The Automatic Six-Month Extension to File?

Getting the six-month Federal tax extension or extending your deadline to October 15th is pretty simple. One thing to remember is that this is only a filing extension and not a payment extension. In fact, the IRS will need to have at least 90% of taxes owed. In order to obtain the extension you will need to file Form 4868, “Application for Automatic Extension To File Us Individual Tax Return.” This can be done electronically using tax software, the IRS e-file system, or by sending the form via US mail. If you file electronically, you will receive an acknowledgment or confirmation number for your records. One thing to remember is that you can get a tax extension if you pay your estimated taxes due by credit card — however, there are different fees depending upon who you use. Be sure to save the confirmation received from the service provider.

With regards to State taxes, a simple Google search will help find the correct form to request a filing extension. Most states, if they have an income tax, will allow you to file a six-month extension. Some states, like California, do not require you apply for one. Be sure to check your State’s website.

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How long you should keep your tax returns, and supporting documentation, is an issue of much debate in the personal finance world. Some people say seven years, some people say keep it forever, and some people say it isn’t worth the space. Ok well most people probably don’t say it isn’t worth the space but really how long are we supposed to keep this crap for. I just looked in my cabinet and I have returns from 2000-2008, that is eight years. Of course further inspection shows I really only have all the documents since about 2002 or 2003 and just returns through 2000. Looking at this mess I wondered how long do I need to keep this crap. Seriously that is all it is to me is stuff that should be shredded and recycled. Giant wastes of paper sitting in a drawer taking up space. Unfortunately the IRS doesn’t agree with my assessment so lets look at what they have to say about the matter.

Maximum Retention

According to the IRS the maximum amount of time you should hang on to any tax related document is, well forever actually. If you file a “Fraudulent return” or don’t file a return the IRS says you need to keep you records indefinitely. That means forever folks. Of course if you are filing fraudulent returns it probably isn’t going to help if you kept the records to prove it was fraudulent.

The Real Deal

I am assuming you are all honest people and aren’t trying to cheat the system. There are several different scenarios that affect how long you should keep your records on hand. According to the IRS:

  • Keep all employment records for at least 4 years after the tax is due or paid, whichever is later
  • Keep records for 7 years if you file a claim for worthless securities or bad debt.
  • Keep records for 6 years if you fail to report income and it is more than 25% of your gross income shown on your return

So What Should You Do?

If you are filing returns and not doing it fraudulently the maximum amount of time the IRS thinks you should hold on to your documents is 7 years. Odds are that is going to be beyond what you need to do for most people so why not just stick with it and hold them for 7 years. That way if the IRS comes knocking on your door you are covered back through 7 years. At the very least keep your records for 4 years to meet the requirements for employment records.

I would love to hear from everyone on how many years of records they currently have and if they think they would pass an audit, leave me a comment and let me know.

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Get Organized for Tax Season

January 25, 2010
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Tax season is upon us, today I gave away four gift cards for TurboTax Deluxe to four of my readers and that got me thinking about my own taxes. How organized are you for your current, and prior, years tax returns. The 1099’s, 1098’s, W2’s and everything else should be trickling in by now and […]

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TurboTax Deluxe Giveaway

January 13, 2010

The good folks at TurboTax by intuit have been kind enough to provide me with FOUR TurboTax Deluxe gift cards to giveaway to four lucky readers of the is blog. These gift cards are for the online version only so there is no software to install. TurboTax Deluxe is the tax filing solution for most […]

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