Maybe it is procrastination, maybe you are afraid of making mistakes. To help, Joan Jensen, president and CEO of the Central Credit Union of Illinois (link: https://www.centralcu.org/), came into our ABC7 studio to share tips to avoid common mistakes as well as tips on how to best invest your return.
Recommendations For Last-Minute Filers
1. Check The Basics
Mistakes made on a federal return are likely duplicated on the state return, which results in doubling the cost of missed deductions and/or penalties.
- Confirm your Social Security number, and enter it on each page of the return. Use your card, don't simply rely on memory.
- Recheck the math. Tax software helps avoid these costly errors.
- Sign and date the return. E-file eliminates the possibility of committing this error.
- Make a copy of the return. This helps with next year's filing and would be necessary in an audit.
2. Common (and Costly) Omissions
- Fees paid for the sale of a home
- Claiming all dependents, including an elderly parent who doesn't live with you
- Claiming credit for any excess Social Security taxes withheld when having worked for more than one employer.
- Cash contribution made to a charity
3. Avoid Needless Fees and Penalties
- Don't pay taxes with a credit card. You will be charged extra fees by the card issuer.
- Don't be late. Missing the deadline means a late-filing penalty - usually 4.5 percent of the tax you owe for each month, or part of a month, that your return is late.
- Avoid extensions by filing on time and paying as much as you can. The IRS will bill you for the balance and only charge interest and penalties on the unpaid balance or apply for an Installment Agreement available at www.IRS.gov or call the IRS at (800) 829-1040.
- The law provides for up to three years to file amended returns for correcting ones already filed or collecting any unclaimed refunds.
Spending/ Investing Recommendations for Tax Refunds
1. Living with Debt?
Pay Down High Interest Credit Card Balances.
If you have a credit card charging an annual rate of 15% and you reduce the outstanding balance by this year's average refund amount of $3,000, you would save $450 this year and $450 for each year going forward that you would have carried that balance.
2. Planning for Tomorrow?
Increase The 401K Contribution.
If your employer offers a match of 50 cents for each dollar contributed to your 401K, you can turn a $3,000 refund into a $4,500 investment.
It's like putting your retirement savings on steroids, and the return on your contribution will grow for years to come.
3. Finances in Tip Top Shape?
Treat yourself or celebrate your financial success with others; plan a vacation, make a monetary gift to family members; or make a donation to your favorite charity and take a deduction in 2012.
