When working with lumber, the hard and fast rule my father and uncles taught me was to measure twice, cut once. You should treat your tax return the same way. Every year I see people hurry to file because the IRS owes them a refund. So they file their taxes immediately to get their money back, perhaps under the assumption that if it’s wrong it isn’t a big deal – they can just file an amended return later.
I think this mindset is ill fated for two reasons. First, you sign your return under penalties of perjury, which means it should be accurate and complete, to the best of your ability, the first time. Also, filing an amended return can bring added expenses of interest and perhaps even penalties. So resist the temptation to file until you’re sure you are ready because you don’t want to have to file an amended return, which could bring unnecessary headaches and costs.
Here are three reasons to wait and be sure your tax return is accurate before filing.
1. Allow for slow 1099s. Most 1099s arrive by the middle of February, when they are supposed to be transmitted to the IRS. But depending on the type of investments you own, Forms K-1 for partnerships, LLCs and S corporations, often arrive later (i.e. March 15 due date). Then there are amended 1099 forms that seem to have a particularly bad habit of showing up right after you file. So depending on the nature of your investments, it may be best to wait until closer to the April 15th deadline to file.
2. Retroactive contributions and itemized deductions. There are ways to reduce tax liability while in the process of completing your return. For example, tax-deductible IRA contributions can be made retroactively (if you qualify). Also, while you may default to taking the standard deduction, it could be advantageous to itemize your deductions to see if your expenses throughout the year generate a larger refund. Both of these potential benefits could be missed if you rush to file.
3. Amended returns bring audits. Everyone hopes not to be audited. However, amended returns are far more likely to be audited than original returns. If you file your return and then receive a 1099 or K-1, note that you are not obligated to file an amended return. The IRS does have computers to match these statements against your return (Form 1040) to find discrepancies and they may send you a bill for the difference. But if you file an amended return you may open yourself up to other scrutiny. So if you simply forgot a deduction and think you can get a small amount back by amending, think twice before doing so.
Now we aren’t tax professionals and do not provide tax or legal advice. We recommend seeking the advice of a qualified tax advisor when income tax questions arise. But we’ve seen our fair share of tax returns gone wrong, which often stems from rushing through the process. So measure twice and cut once. If we can be of help to you, give us a call. We’re here to align your personal values, vision and wealth.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
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