Before we get into extension information, you should double-check with your broker about the April 15 deadline for making last-minute IRA contributions. These contributions are popular because they're one of the few ways you can still reduce your tax liability for the 2014 tax year, but you have to be smart about meeting IRS guidelines and following your broker's limitations.
Technically, the IRS mailing rules allow you to mail your IRA contribution by April 15, and even if your broker doesn't receive it until after that date, the postmark date makes it eligible. However, be sure to follow up with your broker and make sure the contribution gets coded correctly to the 2014 year, as many companies will assume a late contribution should automatically go into your 2015 tax year.
Similarly, check with your broker to see how they handle online IRA account openings and contributions. If it takes a day or two for payments to clear, the safest choice might be to get your account started a few days before April 15 just to give yourself more time. You have a slight risk of an audit, but carefully following protocol can save you hassle later!
Tax extensions: So you're considering filing an extension on your taxes? If so, here are some things you want to keep in mind:
1. Even if you plan on filing an extension, you still have to file the extension paperwork by April 15th. Tax form 4868 gives you an extra six months. If you're expecting a refund, there is no penalty for filing late... essentially because you are giving the government an interest-free loan and why wouldn't they like to keep your money as long as possible?
2. If you aren't paying your taxes on the 15th because you need to get some more money together (isn't that always the case?), you should file an extension requesting a few extra months to pay. Yes, you will incur a fee, however it's a small price to pay versus just not filing on time!
3. Regardless whether or not you actually get an extension, you still need to make a payment if you think you owe money for the 2014 tax year to avoid a monthly charge for a late payment. The failure-to-pay penalty is 0.5% of the taxes due for every month you are late, as well as the regular 3% annual interest rate for tax underpayments.
The cardinal rule? DON'T IGNORE YOUR TAXES! Taxes do NOT go away and it can cost you a lot of money! Failure to file can cost you between 5% and 25% of what you owe.
It is imperative that you remember that filing a tax extension does not allow you to pay later, but simply extends the amount of time you have to file your return. You'll still have to pay any outstanding tax balance by April 15, or face interest and penalties.
Questions? Concerns? Stressing? Call Terry Hendrixson CPA in Franklin at 615-595-4298. We are here to assist you in answering any questions you may have or help you filing your extension!
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