Tax returns are due today. The paperwork headache aside, tax season generates $300 billion in tax refunds each year, a big boost for Americans’ pocketbooks and for the overall economy.
Besides the fact that President Barack Obama will be in uptown Charlotte this afternoon in part to discuss tax proposals, here are a few other things to know about tax day:
▪ The Internal Revenue Service recommends taxpayers file electronically, which reduces tax return error since the software does the calculations, flags common errors and prompts taxpayers to fill in missing information.
For mail-in tax returns, as long as they’re postmarked on April 15, the IRS considers them filed on time. According to the U.S. Postal Service’s website, Charlotte-area post offices close at the regular 5 p.m. time today.
▪ Taxpayers who need an extension can apply for one via the IRS website, and six months from now, October 15, is the deadline for extensions on tax return filing. But those who owe money still have to pay by April 15.
▪ As of April 3, IRS had received more than 99 million tax returns, and almost 80 percent qualified for refunds, the AP reported Wednesday. The average refund was about $2,800.
▪ The IRS loses about $270 billion every year because of “underreported income.”
▪ Penalties for filing late federal tax returns only apply to people who owe the government money since the penalty is a percentage of what a taxpayer owes. The IRS imposes a failure-to-file penalty, which is generally 5 percent, onto tax bills for every month a taxpayer is late, and the penalty kicks in April 16. There’s also a separate penalty of 0.5 percent for failing to pay a tax bill.
The IRS knows when people don’t file because it gets a copy of every W-2, 1099 or other tax form a person receives. And since penalties only apply when taxpayers owe money, the IRS doesn’t particularly care if they don’t file, Bloomberg reported in February. But after three years, taxpayers no longer have a right to their refunds.
The IRS’s system does flag taxpayers when they owe money, but it can take the agency a few years to act on it, so it’s likely nothing will happen right away if someone owes money but fails to file on April 15.
Going to prison for tax fraud, which is how the IRS classifies not filing, is very rare, a representative from the National Association of Tax professionals told Bloomberg.
▪ Perhaps because of budget cuts, the IRS conducted the fewest number of tax audits in a decade – less than 1 percent – and the number could be even lower this year, an IRS commissioner told the AP. But chances of getting audited go up as income rises: Last year the IRS audited 7.5 percent of returns filed by taxpayers making more than $1 million.
▪ The New York Times reported a handful of tax loopholes. For example, rich alumni who make special donations so they can secure tickets to their university’s home athletic events can deduct 80 percent of their cost. Also, private museums let wealthy founders deduct the full market value of art, cash and stocks they donate. They only have to be open to the public for a few days to qualify for the benefit.