Leaving your taxes until the last minute does more than just cause stress and frustration. It can also cost you – literally. Last-minute tax filings can impact your short- and long-term finances, and cause you to miss out on a number of benefits.
Below, we’ll guide you through the dangers of leaving your tax filings too late, and provide tips to ensure you always file on time.
The Unexpected Cost of Errors
Mistakes can easily creep in when you’re rushing to complete your tax returns. These can be simple errors like an incorrect bank account number, or typos that lead to the wrong amounts when reporting your income. Or you could skip filling in a relevant section of your return entirely.
Similarly, when you delay filling out your return, you might realize that you don’t have the necessary supporting documents for evidence. Even worse, you could forget to sign your return. An unsigned tax return is like an unsigned check; invalid!
The errors that crop up during last-minute tax filings can significantly delay the processing of your taxes, and may lead to fees and penalties. More importantly, they can delay the payment of any potential refunds from the IRS.
To prevent making mistakes in your tax returns, be sure to read through the return carefully and choose the right filing status. Misclassifying yourself will impact your tax liability, and could lead to incorrect calculations. Also, ensure that you proofread everything you enter.
Don’t risk technical issues
The IRS has revealed that the average person takes around 15 hours to file Form 1040, and approximately five hours to complete Form 1040EZ. That factors in record keeping, tax planning, as well as completing and submitting your form.
This makes last-minute tax filings so much worse if you’re experiencing technical issues. If your computer crashes, or your internet is down, you could go from filing just in time to filing late.
Avoid increased liability
A major disadvantage of leaving your taxes until the last minute is finding out that you have an unexpected tax debt. It means you’ll have even less time to come up with the money you owe the IRS.
More importantly, last-minute tax filings can make you vulnerable to fraudulent activity. There have been reported instances of scammers creating fake returns and filing these against stolen social security numbers, to get refunds. Filing your returns correctly and on time can help alleviate this risk.
What to do if you make a mistake
Depending on the nature of the error, you may be able to fix it without an issue. Simple math problems (like adding up your income incorrectly), entering the wrong social security number, or filling out the wrong address can be fixed through an amended tax return. However, significant errors, such as failing to submit supporting documents and forms, might lead to penalties.
If you make a mistake on your tax return, the best thing to do is immediately consult with a CPA, and get it fixed as soon as possible.
Missing Out on Deductions and Credits
Rushing your return will severely limit the time you need to check whether you’re eligible to claim any deductions or credits. There may also be tax credits available to you that you don’t know exist! Both scenarios effectively mean that you’ll be paying more tax than you need to.
According to the IRS, many taxpayers don’t apply for tax credits or deductions because they don’t think they have enough deductions to justify this. This includes charitable contributions. If you’re doing a last-minute tax filing, there’s also a chance you’ve forgotten to track these contributions throughout the year. As such, you’ll lose the chance to claim them and lower your tax liability.
Strategies for maximizing tax breaks
Taking the time to properly research possible deductions, and itemizing these correctly, can save you money in the long run. Keep track of things like:
- your mortgage
- tuition payments
- medical expenses
- travel and mileage (especially for volunteering or business activities)
- how much you spend on your home office.
These kinds of expenses can often be lowered through deductions.
In addition, you’ll need time to consider tax investments like retirement accounts or bonds to lower the amount you owe the IRS.
Increased Audit Risk
Major errors and oversights on your tax return as a result of last-minute tax filings could be a red flag for the IRS. And unfortunately, this could lead to audits.
While many people think that filing for an extension is a sure-fire way to get audited, this isn’t necessarily true. It’s better to have more time to get your return in order, and avoid the real potential triggers. These include:
- Information on your return that doesn’t match up with your 1099 or W-2 forms
- Misreporting your income
- Excessive expenses
- Misclassifying your filing status
- Having assets outside the country
- Making excessive amendments to your returns
Keep in mind that the IRS uses your DIF (Discriminate Information Function) score to select returns for audits. When you’re under pressure and the clock is ticking, the above mistakes are easier than ever to make. This can negatively impact your DIF score.
How to limit your risk
An efficient tax strategy can help you avoid mistakes, and go a long way in minimizing your chances of being audited by the IRS. This includes ensuring you report your income correctly, and checking your returns against those of previous years.
Filing Extensions and Penalties
Leaving your taxes until the last moment will probably make you wish you had more time. Of course, it is possible to request an extension with Form 4868. And if you’re an international taxpayer abroad, you’re automatically entitled to a two-month extension.
But keep in mind that an extension only gives you more time to file your return – not to actually pay your taxes. So even though you have a longer period to file, you may still be subject to penalties for the tax you owe, including any back taxes due.
Navigating IRS payments
One reason that many people delay filing their taxes is because they worry that they won’t be able to pay what they owe. Sadly, this just compounds the situation and makes matters worse.
If you can’t manage the entire amount, pay as much as you can to reduce the interest and penalties. Thereafter, you can arrange an installment plan with the IRS – provided that you have filed and paid on time in the past.
Strategies to Avoid Last-Minute Filing
When it comes to your taxes, preparation is key. This means knowing exactly what’s expected of you, along with when you need to file and pay. For this reason, having a tax subscription service can be a lifesaver.
When a CPA is handling your taxes, you can ensure that your documents are organized throughout the year, and that your filings are submitted on time. More importantly, you’ll have access to tailor-made tax strategies. That means you make the most of credits, deductions, and tax investments long before you need to start completing those forms. With the help of a tax professional from Fusion CPA, you won’t just avoid last-minute tax filing – you’ll be able to start early.
Our team has the expertise to steer you through complex tax situations, and ensure that your return is completed and filed correctly. By using the best software, we can also help you save as much money as possible, while remaining compliant with IRS regulations.
To find out how we can help you avoid the risks of last-minute tax filings, schedule a Discovery Call with one of our CPAs.
The information presented in this blog article is provided for informational purposes only. The information does not constitute legal, accounting, tax advice, or other professional services. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the information contained herein. Use the information at your own risk. We disclaim all liability for any actions taken or not taken based on the contents of this blog. The use or interpretation of this information is solely at your discretion. For full guidance, consult with qualified professionals in the relevant fields.
