WASHINGTON (AP) — Monday is Tax Day — the federal deadline for individual tax filing and payments — and the IRS expects to receive tens of millions of last-minute filings electronically and through paper forms.
As of April 8, the IRS had received more than 103 million returns for this tax season, and it had issued more than 63 million refunds worth more than $204 billion.
For comparison, last year more than 169 million people completed an income tax return by the end of the year. That probably leaves nearly 40% of this year’s taxpayers still unaccounted for, with many scrambling to submit their documents by Monday.
Nina Tross, executive director of the National Society of Tax Professionals, said that if people haven’t filed their taxes by now, “they’re better off filing an extension.”
But, she added, “People don’t realize that filing an extension has zero effect” as long as they have paid their income taxes by Tax Day.
“An extension is merely filing a return at a later date,” Tross said. “If you rush through a return to get it out the door, and you have to amend it later, you’re more likely to get a double look from the IRS.”
“You’re much better off extending than amending,” she said.
The IRS this year is facing its biggest backlog in history. At the end of the 2021 filing season, the agency had 35.3 million returns waiting for processing. One reason is that every paper document that goes into the IRS is processed by a human, according to the IRS.
Another is that the agency has administered massive coronavirus pandemic-related relief programs over the last several years — like the advanced Child Tax Credit.
And some forms are reviewed by IRS employees and treated as if submitted on paper even if they are e-filed.
This year will be one of the most challenging for the agency, with its record low staffing numbers. The IRS workforce is the same size it was in 1970, though the U.S. population has grown exponentially and tax laws have become increasingly complicated.
FILE - A W-4 form on Feb. 5, 2020, in New York. Monday is Tax Day, the federal deadline for individual tax filing and payments. The IRS will receive tens of millions of filings electronically and through paper forms. (AP Photo/Patrick Sison, File)
Lisa Greene-Lewis, a certified public accountant and a spokesperson at TurboTax, said that if people still intend to file a return by Tax Day, “I would gather all your documents in one place so you don’t leave anything out, like W-2s and 1099s.”
Important papers such as the “Letter 6419” that outlines the Child Tax Credit payments a taxpayer should have received this year and the “Letter 6475” for stimulus payments should also be on hand.
Greene-Lewis, who has been doing taxes for more than 20 years, said “you want to report the correct amount you received so you don’t have to have to make adjustments to your refund.”
Though the agency announced plans in March to hire at least 10,000 more workers to help process returns, administration officials say the IRS is in desperate need of more funding, as its budget has fallen over the last decade.
On a call with reporters, a senior Treasury official who spoke on the condition of anonymity said the IRS backlog could be remedied with higher funding levels, as the IRS’ budget has decreased by more than 15% in real terms.
The IRS has put out some information and helpful links for last-minute filers — stressing that “taxpayers should be careful to file a complete and accurate tax return. If a return includes errors or is incomplete, it may require further review.
Keith Kahn, director/chair of the Delaware Society of CPAs, said he encourages everyone to file an electronic return.
When asked whether CPAs will accept clients on Tax Day, Kahn said it’s common for people to be turned away. But for those who can get an appointment, “make sure you have everything you could possibly provide to your CPA — there’s not a lot of time to hammer out strategy or to ask questions.”
Whether you’re filing your own taxes or having someone prepare your tax return for you, you are “legally responsible for what is on your tax return,” the IRS warns. Falsifying your income to claim tax credits you aren’t entitled to can lead to penalties and additional fees.
You’re not fooling anyone if you understate your income to avoid paying taxes or to get a bigger return. The IRS receives third-party information about your income from employers and financial institutions using its Automated Underreporter (AUR) function. If there’s a difference between what you reported and what the AUR picks up, you will receive a CP2000 form and possibly have to pay your remaining taxes.
According to the IRS, for a child to be a true dependent, they must be related to you, live in the same home as you for more than half the tax year, be of the correct age and not file a joint return with someone else.
Research from the IRS shows that in 2019, the nonfiling tax gap was estimated to be $39 billion. Non-filing of taxes is still considered tax fraud because you are withholding information from the IRS and failing to fulfill your legal duty to pay taxes.
The September 2019 estimate for the underpayment tax gap was $50 billion. You may be able to avoid an underpayment penalty if you made less than $1,000 after withholding and tax credits and you paid at least 90% of your withholding or estimated tax for the current year or 100% of the tax shown on the return for the previous year.
If you’ve incurred expenses associated with your work, you have every right to recoup them. But make sure you’re reporting and claiming expenses you actually had. Falsely inflating expenses and deductions was included on the IRS’s 2018 “Dirty Dozen” list of the worst tax schemes. The IRS estimates that close to 75% of tax filers overstate their expenses, which reduces their tax bill. The penalty for misreporting expenses can be up to 25% of the amount you owe.
Keeping improper records, misreporting a full donation when you received something of value (like tickets or merchandise) in exchange for your donation or giving to dubious charitable organizations are all ways you can find yourself unintentionally being dishonest about your taxes.
If you’re a business owner who uses independent contractors, they can still report their income, even if you don’t give a 1099. But as a business, if you fail to distribute 1099 forms, your penalties can be anywhere from $25 to $270 per form. If you intentionally disregard the form requirement, your penalty will be $550 per form with no maximum. Contractors who fail to report their 1099 income will receive a penalty of 20% of their underpayment.
While many people complete some of their work from the comfort of their home, a home office deduction is only for people who make “regular and exclusive use” of their home as an office and their home is the “principal place” of their business.
Unscrupulous accountants and other scam artists abound this time of year, and not doing your due diligence could leave you with a hefty penalty or worse since, no matter who prepares or helps you prepare your tax return, you are still responsible for it.
Shell entities exist only on paper and can allow taxpayers to avoid reporting all of their money as personal, taxable income. Underreporting your income, however, is fraudulent, so if you’ve started an LLC or other company and are putting money into it, make sure it has legitimate business operations and that you are still reporting your income correctly.
While certain tax shelters like retirement accounts, investments and municipal bonds are perfectly legitimate ways to minimize your tax burden, abusing these shelters by redirecting money purely to avoid paying taxes is tax evasion and can subject you to penalties.
If you find that you’ve made a mistake on your tax return that could subject you to a penalty, you can amend your return using a Form 1040-X, Amended U.S. Individual Income Tax Return. In some cases, if the IRS determines that it’s a clerical or mathematical error, they may correct it on their end without you having to do anything.