Money Coach Offers Last Minute Tax Advice
MICHEL MARTIN, host:
I'm Michel Martin, and this is TELL ME MORE from NPR News.
Coming up, do kids need to be taught how to play at recess? Some advocates are saying that more adult involvement at recess will cut down on bullying. Our moms will have their say in just a few minutes.
But first, you know, taxes are due next week. Don't panic. You still have time. Our next guest has a few tips to offer about minimizing mistakes and boosting that refund. She's with us now. Lynette Khalfani-Cox is a founder of the free financial advice blog, askthemoneycoach.com and the author of "Zero Debt: The Ultimate Guide to Financial Freedom." Thanks so much for joining us.
Ms. LYNETTE KHALFANI-COX (Founder, Askthemoneycoach.com; Author, "Zero Debt: The Ultimate Guide to Financial Freedom"): Hey, thank you for having me.
MARTIN: We understand that about 25 to 30 percent of Americans will wait to file their returns in the last two weeks before the April 15th deadline, this according to Christopher Miller of the Internal Revenue Service. Now, why would that be? Do we know why some people file late versus others?
Ms. KHALFANI-COX: Yes. And I think they fall into perhaps two to three broad groups. One, frankly, are self-employed people who are often notoriously busy. Some of whom may have a CPA or perhaps may be doing the books themselves, that they have sort of a kind of mom and pop operation. And because of all the other demands of running their businesses, et cetera, they may be more inclined to wait until the last minute, knowing also that they could get an extension if need be. So, that's probably one big group.
I think another group are just the everyday, average folks who are procrastinators who have waited until the last minute because of other demands, maybe civic, family, work, other obligations in their lives and they keep saying, I'll get to that, I'll get to that, I'll get to that.
MARTIN: We know, though, that something like 60 percent of people hire a paid preparer. That's a lot of people. Why do people still then put it off? Is it just because they find it inherently unpleasant?
Ms. KHALFANI-COX: You know, even when people turn over their taxes to a professional, there is a significant amount of upfront legwork that has to be done. Not only do you have to, of course, you know, amass any of the W2s and the 1099s and the various tax forms you might have received late in the first quarter of the year, but you also have to do things like gather together information about any potential deductions for which you might be eligible.
So, pulling together your mortgage interest paperwork that tells how much you paid in mortgage interest, your property tax records if you paid property taxes. If you're going to try to claim deductions and excess for medical expenses in excess of, you know, two percent of your adjusted gross income, you might gather together a lot of medical records.
If you were out of a job and you were job hunting, you might be eligible to take, you know, some tax deductions for that kind of thing. If you relocated, if you sold property or real estate, things of that nature that, frankly, most people probably haven't been the best in terms of record keeping throughout the year. So, all of sudden, it's crunch time and the proverbial shoebox that you see being dropped on the desk of the harried accountant, it really does happen.
MARTIN: If you're just joining us, this is TELL ME MORE from NPR News. We're talking last minute tax advice with Lynette Khalfani-Cox. She's the founder of the free financial advice blog Askthemoneycoach.com and the author of "Zero Debt: The Ultimate Guide to Financial Freedom." So, is there anything that people can do to make this whole experience (unintelligible).
Ms. KHALFANI-COX: Less taxing.
(Soundbite of laughter)
MARTIN: Less taxing. Less taxing.
Ms. KHALFANI-COX: Well, you know, I think the biggest strategy and it's tough, needless to say, to do it with, you know, sort of a week to go. But the biggest single strategy that people can use to minimize the stresses of tax time is to really do a little bit along the way, and is to prepare throughout the course of the year to the extent that you can automate and streamline the process and do it over time, I think that'll make your tax season a lot less hectic.
MARTIN: Okay, okay, that will be next year's New Year's resolution.
Ms. KHALFANI-COX: Yeah.
MARTIN: So, let's say you haven't done that. What can you do right now to make that stress headache go away or at least, you know, not so painful?
Ms. KHALFANI-COX: Sure. What I would say is, as you said at the outset, don't panic, and to realize that even if you face one of the two biggest problems that people face, which is, I owe, but I know I can't afford to pay, or, B, I don't even have everything together to be able to make an honest and accurate assessment. Go ahead and file for an extension if you think you need one, because you do have six additional months that the IRS will grant to you.
Now, the caveat here, of course, is that if you should owe money, that extension does not exempt you from not paying or not paying at least what you think you're going to owe. If you fail to pay, then you would be subject to penalties and additional interest, et cetera.
But I think, really, for a lot of people, if you've, you know, gotten down to the crunch time here and you say, there's no way I can pull all this together or I don't have all the records I need or I'm simply not prepared to pay, go ahead and file an extension if you fit into the first category in terms of your paperwork is out of order.
But even if you owe and you know that you don't have the money to pay, you can work out a deal with the IRS.
MARTIN: How do you do that?
Ms. KHALFANI-COX: Well, the best site to get the most up-to-date information, of course, the IRS itself, IRS.gov, but I can tell your listeners in a nutshell that, for example, if you owe under $25,000 in taxes, you can pay over time literally up to 60 months. The IRS will allow you to work out a payment plan. And so that's a good thing for people to know. They'll even let you get an extension and not have to pay additional interest over time like that with the 60 month plan.
MARTIN: That was going to be - I'm sorry. That was going to be my question: If you go to the IRS upfront and say, I know I owe, but I don't have the money right now and you proactively try to work out a payment plan, are you still subject to penalties and interest on the amount? Is that clock ticking?
Ms. KHALFANI-COX: Yes. The clock is ticking and you will not be able to get out of paying additional interest if you're making a payment plan or potentially late fees if there was a certain amount of tax excess that should have been paid and was not. So, yes, you will have to pay.
The good news, though, is that for some folks who may be expecting a windfall or maybe expecting to come into some cash or have additional monies in a fairly short amount of time, you can put off having some of those late fees and interest charges assessed. You can get an extension anywhere from 30 to 120 days.
Now, again, there's always a pro and a con to these kind of deals. And the pro, of course, there is that, great, you don't have to necessarily pay it all right April 15th, you work out a plan and say, I need 60 more days and then I'll be able to pay the taxes that I have due.
If you don't pay in those 60 days, then you automatically get funneled into, you know, one of their collection accounts and then you, you know, you really do have to pay upfront and you don't want to be subjected to potential liens or tax levees and things of that nature.
But, really, the IRS, they made a big push, obviously, in recent years to be seen as a little more friendly. And the fact is they really have worked with taxpayers, I think, a lot more. And a lot of it is about communication. If you just reach out to them and say, look, here's where things stand, don't have the money to pay, definitely want to pay. I'm going to file, you know, don't dodge them, in other words. Don't fail to file because that's the stuff that lands you into hot water.
MARTIN: All right, the bottom line: Don't panic.
Ms. KHALFANI-COX: It is too late to panic. You know, at this point, you might as well just kind of coast through the process. And, again, the things you didn't get right this year, there's always 2011.
MARTIN: All right, Lynette Khalfani-Cox is the founder of the free financial advice blog askthemoneycoach.com. She's the author of "Zero Debt: The Ultimate Guide to Financial Freedom," and she joined us from member station WBTO in Newark, New Jersey. Lynette, thank you so much for joining us.
Ms. KHALFANI-COX: Thanks, Michel.
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