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Smith School Lecturer Says There’s Still Time to Avoid Penalties, Contribute to Retirement
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After two years of pandemic-related extensions, Tax Day 2022, which falls on April 18, might have sneaked up on you. But if you haven’t filed your taxes yet, don’t panic, said Sam Handwerger ’75, lecturer at the Robert H. Smith School of Business. The longtime CPA oversees the nonprofit TerpTax, University of Maryland’s free tax preparation service for low- to mid-income individuals on campus and in nearby communities.
With just over a week to go, he offers tips to avoid IRS penalties, ways you can still decrease your tax burden and why you shouldn’t procrastinate next year.
File an Extension
“Years and years ago, you had to give an excuse for why you needed an extension. That became a joke because everyone said the same thing, like, ‘The dog ate my W-2,’ and the IRS was inundated with millions of requests with ridiculous excuses,” said Handwerger. Now, anyone can apply for an automatic six-month extension until Oct. 17, so you don’t end up paying the penalty for filing late.
The caveat, however, is that if you anticipate owing significant money to the IRS, you need to estimate how much and pay it now. “It’s a catch-22,” he said. “They will charge interest and a penalty, based on how long it takes you to file and pay what you owe after April 18.”
If you think you’ll receive a refund, you aren’t required to file an extension, since penalties are based on the amount of taxes you owe, but Handwerger advised getting the extension just to be sure.
Contribute to Your IRA
If you haven’t maxed out your retirement contributions, you can still open or add money to your individual retirement account (IRA) until Tax Day and have it count as a deduction towards last year’s taxes (if you are eligible based on income limits), so a deductible IRA can slightly reduce what you owe when you file, Handwerger said. “The beauty of it is that you’re taking money from this year but using it for a tax benefit for 2021.”
You can also still contribute to your Roth IRA for 2021; that doesn’t reduce your taxes now, but can keep you on track to grow your retirement funds.
“I would recommend electronic filing so you know it’s gotten in there and has been acknowledged by the IRS and the state,” he said. “Then you have the comfort level of knowing it’s done.” If you file by paper, your envelope must be postmarked by April 18.
People who filed by paper for 2019 or 2020 may still be waiting for their refunds, he said, because the IRS is severely understaffed and has been burdened with managing the distribution of COVID-19 stimulus checks. Refunds could again be delayed for months this year, especially for people who request paper checks instead of direct deposit.
“The IRS just doesn’t have the manpower or infrastructure to do everything Congress is asking it to do,” Handwerger said.
Keep Track of State Differences
Maryland has extended its state tax deadline to July 15—but that only applies to Maryland income taxes, so you still have to make sure you get your federal taxes done on time.
If your primary address is in Massachusetts or Maine, where Patriot’s Day is celebrated on April 18, your federal deadline is April 19. And if you officially live in a federal disaster area, such as people who were affected by Kentucky tornadoes or Colorado wildfires, you have until May 16.
Plan for Next Year
While you’re down to the wire this time, it’s best not to wait until the last minute in future tax seasons.
“The latest and greatest advice over the last two years is to file early. There are people out there filing fraudulent returns using stolen identities, addresses and Social Security numbers, and if you are a victim of that it can hold up your legitimate refund request. Filing before the fraudster is a way to defeat that problem,” Handwerger said. Companies and banks usually send documents by February, so it’s best to get your return in as soon as you get your paperwork.
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