Karyn Vaughn, E.A.
Special to Village News
The tax deadline for 2016 returns is fast approaching. Maybe the year’s returns are prepared already and there’s an unexpected balance due, or maybe the returns are incomplete and hiding in a drawer in the office just waiting until the last minute because there might be an unwanted balance due. In either case, there might be options to wrestle with those taxes.
One option would be to contribute to an Individual Retirement Account (IRA) or Simplified Employee Pension (SEP) and take the deduction on the 2016 return. Deposits made before the filing date April 18 and designated as 2016 contributions, can be deducted retroactively.
The limits on individual retirement accounts are $5,500 or $6,500 for people over age 50. A SEP is for businesses and has a much higher limit than individual retirement account, up to 25 percent of compensation to a maximum of $54,000. This contribution can take a very large chunk out of that tax liability for self-employed workers.
Next, consider if there were any additional deductions found after completing the return. These deductions can still be claimed. One thing I always suggest to clients who find themselves with a balance due is to go back and see what they may have missed.
Take another look at business, medical and charity mileage to be sure everything has been captured. Recalculate non-cash charitable donations to be sure the value was not under-estimated. Check out www.salvationarmysouth.org/valueguide-htm; the website lists how much can be deducted for various donations.
If tax-reduction options are exhausted and there is still a balance due, there are options for payment. IRS accepts credit cards. There is about a two percent fee for this service, but it can still be a welcome option for some taxpayers.
Also, apply for an installment agreement with IRS. Most taxpayers qualify for an automatic approval to make payments over 72 months. There is an application fee and interest, and IRS will keep any future refunds to apply to the balance. For either of these options, go to www.IRS.gov and search for the desired option or use the IRS2Go mobile app.
Contrary to popular belief, filing an extension does not extend the time to pay required taxes. When applying for an extension of time to file returns, the tax payer must estimate and pay the tax due with the extension.
If a tax payer has already filed and wants to take advantage of the above options, it is not too late. They can file an amended return to make the appropriate changes and pay the corrected balance due. If they have already e-filed and chosen payment by direct debit, the original balance will still come out, but they will get a refund with the amended return.
If they need to use a payment option, it should be done as soon as they can, and they must pay as much of the balance before the deadline to reduce penalties and interest. A balance-due tax return is never fun, but hopefully these suggestions can make it a bit easier. Stay calm and carry on.
To submit tax questions to be covered in this column; email [email protected] or visit www.karynvaughn.com.
Karyn Vaughn is an enrolled agent and business consultant. She has been helping taxpayers for 30 years. She has extensive experience in tax matters for individuals, corporations, partnerships, LLCs, trusts, estates and IRS settlements. Her status as an E.A. allows her to practice in all 50 states and to represent taxpayers before the IRS.