Here’s some last minute tax tips (incentives) for those who procrastinate.
• Even if you anticipate a refund, file a timely federal and CT extension by 4/18/16 which allows you to file your taxes (timely) by 10/15/16. The reason for this advice is that if IRS/CT adjusts your return in the future to the extent that it eats up that initial refund, you’re now looking at penalties that easily escalate to 25% for a five- month delay in filing. CT charges $50 late fee even if you owe no taxes!
• Filing an extension does not extend the time for paying the tax. This penalty can also climb as high as 25% but at a slower rate since the penalty is ½ of 1% per month up to 25%. CT charges 10% right out of the gate for being late!
• The federal interest rate on underpayments is 3% per year. Contrast this with the 1% per month charged by CT.
• Direct deposit / direct with-drawal is safer and quicker than checks. Also for withdrawals you can designate the date of payment.
• Invest in a retirement account in 2016 and deduct it on your 2015 taxes – fund your investment IRA NLT 4/18/16 for 2015 to save. Aside from the deduction, you may even get a savings credit.
• While it’s fresh on your mind be sure to keep track of the deducted contributions – this means greater detail, than “3 bags of clothes”. To be ready for an audit, keep a list of the items in good condition that you donated along with the values (example 10 sweaters @ $6). If you didn’t obtain a receipt from the organization be sure to know the date, charity, address as well. Note for drop boxes, you can claim up to $249 value; with receipts up to $499. Beyond this (per donation basis) an appraisal (before you file or due date) is required.
• Start thinking about 2016 – it’s not too early. Great tax planning starts today.