The Automatic Millionaire - Seven Very-Last-Minute Tax Tips


David Bach

Procrastinators, take action! Here are seven cut-to-the-chase tips for filing your return with the least pain for you -- and the least gain for the tax man:

1. Get Going

I know -- filling out your Internal Revenue Service (IRS) return isn't one of life's greatest pleasures. But the money you'll save in taxes by doing a thorough, on-time filing makes it all worthwhile.

On the other hand, rushing through your return at the 11th hour is a great recipe for making mistakes that can add to your tax bill. So start now, and be as deliberate as you can. If you really need more time, apply for an automatic extension -- this year you can ask for an additional six months.

Most of all, don't let your inability to pay the tax you owe stop you from filing. Even if you just pay some of the tax on Apr. 17 (this year's deadline) and some later, you can greatly reduce penalties and interest costs. Or you can charge your federal tax bill to your credit card. While not ideal, your credit-card interest may well be less than the penalties and interest the Feds will hit you with if you don't file. The IRS Web site has more information on paying taxes with a credit card here.

2. Get Informed

The more you know, the better things will go, whether you do your own taxes or hire a preparer. For the full scoop on how to file, download IRS publication #17, "Your Federal Income Tax for Individuals."

Don't let the publication's 296 pages deter you -- a table of contents helps you quickly pick which sections are likely apply to you. Take a look at #17, even if you get no farther than page 1, which offers a quick overview of what's new in the tax code for the 2005 tax year. Pay particular attention to these pieces of good news:

* The amount you can deduct for business miles jumped to 48.5 cents a mile for miles driven for business purposes after Aug. 31, 2005.
* If you were affected by hurricanes or volunteered to help those who were, you may be entitled to special tax relief.
* The IRA limit is $1,000 higher in 2005 than it was in 2004 -- and you have until Apr. 17, 2006 to contribute.

3. Get Organized

Even if you get someone else to prepare your taxes, it's up to you to provide them with all the relevant information. Yahoo! Finance's Tax Center has a tax-document checklist. While you're there, have a look at the other features of the site -- there are links to downloads of federal and state tax forms, tools such as tax calculators, education information, and other tax resources.

4. Get Wired

If you're planning to do your taxes yourself, file electronically with tax software. It's easier and makes your return neater and much less prone to error, since the computer does the math for you. TaxCut and TurboTax are two of the leading tax-prep software programs.

Plus, if you e-file, you'll find out about any errors you do make much more quickly, and your refund will arrive sooner. For the fastest refund, go the direct deposit route: Give the IRS your bank account number, and they'll electronically deposit any funds due you in that account -- no more waiting for the mail!

5. Get a Pro

If the mere thought of doing your taxes gives you hives, hire a professional. Here are three options:

* Independent and franchise preparers can complete a basic return for you for about the same cost as a good piece of tax software. Ask for recommendations from friends or neighbors, or visit the Web site of either of these national tax preparing franchises to find an office near you: H&R Block or Jackson Hewitt.
* Enrolled agents must pass a two-day exam given by the IRS or have worked for the agency continuously for five years, so they really know their stuff. They can also represent you to the IRS in an audit if need be. To find one, visit the National Association of Enrolled Agents' referral engine at NAEA.org.
* Certified Public Accountants (CPAs) can be especially help if your tax situation is particularly complex. CPAs charge more, but their fee can sometimes be offset by the extra deductions they find. CPAs can also represent you in an IRS audit. The American Institute of Certified Public Accountants Web site can help you find a CPA in your area.

No matter what type of tax pro you use, ask in advance for a list of documents and information they need to do your return. If you have your information organized according to your preparer's system, you'll likely pay less in hourly fees.

6. Get Double-Checked

Go over every line of your return a second time before you file. The IRS receives millions of error-ridden returns every year -- a surprising portion of them on forms completed by professionals.

Since any errors may cause the agency to look more closely at your return and may also delay or reduce a refund or increase what you owe, aim for perfection. Some of the most common blunders:

* A taxpayer ID number was incorrect or illegible.
* Names of dependents names didn't match IRS or Social Security Administration records.
* The earned-income credit was figured or entered incorrectly.
* Information was entered on the wrong line of a form.
* The child tax credit was calculated wrong.
* The box that qualified a child for the child tax credit wasn't checked.
* The balance due or refund amount was miscalculated.

7. Get a Jump

When you're all done and you've filed your 2005 return, take a deep breath and congratulate yourself. Then spend a few extra minutes to make a note of those deductions that you could have taken this year -- such as the value of clothing or household items donated to charity or un-reimbursed business miles -- if only you'd documented them.

Then, create a series of paper folders in which to file such documents (see "Getting Your Financial Life Sorted"). Put the files where you'll see them regularly. They'll help you owe less tax -- or receive a bigger refund -- next year. Now that's something to look forward to!

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I made over $900 last month having fun!
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