Originally published on Forbes.com.
As the due date for individual tax returns is coming up – April 17th thanks to Emancipation Day, one of my favorite holidays – here are a few tips, that you might not see elsewhere. The individual due date, which I and many of my friends, refer to as “the fifteenth” regardless of the couple of extras days that the holiday and weekend might give has been a big part of my life since my first tax season in 1980. And here I am in my last tax season, which actually ends on October 15, but there is still some April 15 drama.
My little tips are the result of both experience and extensive reading. I read more tax decisions than most people who prepare/review returns and I have prepared or reviewed more returns than most of the people -tax attorneys and professors- who have read more decisions than I have. The tips are for both preparers and taxpayers and some of them represent minority opinions. If somebody tells you different, they are still wrong, but they have a lot of people on their side, so you might need to go along. Here we go. I will provide references, where appropriate to Reilly’s Laws of Tax Planning.
Make Believe The Deadline Is April 8
Really. If there are still issues that prevent you from filing an accurate return, next week, put together a good extension calculation, file the extension (Form 4868) (You may have to also file some state extensions), and relax. Most of the tax season drama is, well, drama. One thing that tax professionals will never admit – even to themselves – is that they actually like tax season. They have a job that is rather tedious, not at all dangerous, and not really that challenging intellectually. Tax season drama creates a sense of camaraderie and makes them feel special.
Among the people who should definitely extend this year are those affected by the Bitcoin hard fork in August. Also if you are party to a deferred like-kind exchange and have not closed on the replacement property, you must extend to have the full 180 days.
Don’t Be Pressured Into Reflexively Signing A Joint Return
If out of the loop spouses were more careful about signing joint returns, the Tax Court would lose a lot of its business. Filing a joint return is an election. You don’t have to do it. And it has implications beyond the aggregate amount of tax, which admittedly is usually lower than it would be on separate returns. The big difference is joint and several liability. The IRS can go after either signer to satisfy a deficiency either from the tax not being sent in with the return or a subsequent audit.
Most tax professionals who prepare returns don’t consider the nuances of collection. If the tax is more than you can pay, it might not matter how much more. What you end up ultimately paying, in that case, is your “reasonable collection potential”. That will tend to be higher with a joint return. In this article, I discussed what you should be thinking about if you are facing a balance due you cannot cover.
I think special care should be taken in the case of joint returns for the final year of the marriage. And tax professionals need to be more sensitive to the fact that in the case of a joint return, they really have two clients.
Don’t Blow Off State Returns
Most states tax their residents on worldwide income and non-residents on income earned in that state. The states will usually provide a credit for taxes paid to other states. If you blow off filing in another state, you won’t get the credit. If the other state catches up with you, it might be too late to claim the credit in your home state. If your tax preparer tells you that it is a really big deal to add the additional state, they either have lousy software or are lying.
Think About A Roth IRA For Your Underemployed Millenial
This is a recycling of my tip from last year. It is still a good idea. I have never been a big Roth enthusiast. A Roth IRA contribution yields no tax deduction, but the income of the Roth accumulates and can be ultimately distributed tax-free. An ideal candidate for a Roth contribution is someone with earned income, but no income tax liability. Of course, that is likely a person without the means to make a contribution. Well, what are parents or grandparents for? So think about making a contribution for your twenty-something who is an underemployed Uber driver or whatever.
A followup suggestion that someone gave me on this was that prosperous younger people might want to apply this strategy to their improvident parents. That’s a nice thought.
Look Before You Sign
One of the best reasons to go on extension, if you have gone this far, is that it will give you time to review your return carefully before signing it. In this piece, I tell you about a few things that are sometimes missed. In particular, if you have a very large AMT liability, there is a good chance that combing through returns for the last several years, might indicate that it is not as bad as you think. That takes time and the rush, rush atmosphere of mid-April encourages the association of thinking fast with making mistakes.
The Headline
The “no fooling” in the headline is just to emphasize that the April 1 byline notwithstanding, I’m giving you serious advice here.