There’s about one month until the Oct. 17 tax deadline extension, and experts say filers need to prepare, especially for more complicated returns.
Kevin Brady, a certified financial planner and vice president of Wealthspire Advisors in New York, said tax professionals have faced many challenges, including deadline changes and new Covid-related legislation.
“When you combine those facts with the understaffing in tax prep and accounting firms and usual tax code complexity, filing for an extension has become more of a necessity,” he said.
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For example, the Paycheck Protection Program and employee retention credit, enacted for businesses during the pandemic, have added a “significant amount of complexity and uncertainty,” said Rob Baner, a CPA and tax advisor at The Planning Center in Moline, Illinois.
Despite these challenges, taxpayers are quickly approaching the deadline for 2021.
“The best advice we can give is to file the return as soon as possible,” said CFP Diahann Lassus, managing principal at Peapack Private Wealth Management in New Providence, New Jersey, who is also a member of CNBC’s Financial Advisor Council.
How to get organized before the Oct. 17 deadline
Experts say that with only about four weeks left until the deadline it’s critical to get organized, communicate with your tax preparer and provide information as soon as possible.
“Don’t procrastinate,” Baner said, noting that some tax documents may take more time to process. He suggested keeping a folder for all paperwork.
For example, tax professionals are wrestling with new Schedule K-2 and K-3 forms for international taxes, which may not come until Sept. 15 or Sept. 30. These forms go with Schedule K-1 forms for partnerships, S-corporations, trusts and estates.
If you’re expecting a refund, you may receive it faster by e-filing and choosing direct deposit, according to the IRS, with most error-free returns processed in fewer than 21 days.
“Electronic filing is the most efficient,” Lassus said.
Tips for the Oct. 17 tax extension deadline
1. Don’t procrastinate.
2. Communicate early and often.
3. File electronically.
4. Pay your tax balance.
5. Reconcile Covid relief.
However, if you didn’t pay your balance by the April 18 deadline, you’ll owe interest and a late-payment penalty, which varies by type of return and the length of time past the deadline, Baner explained.
Interest rates for underpayments jump to 6% from 5% on Oct. 1 and compound daily, according to the IRS. And if you miss the tax deadline extension, you may owe a late-filing penalty.
“The only good news here is that there is no penalty for failure-to-file if you are due a refund,” but you must file within three years to claim it, Lassus said.
With the IRS still digging out from a backlog of unprocessed returns, it’s critical to file accurately to avoid unnecessary processing delays.
Before filing, you’ll want to double-check Covid relief, such as stimulus and advance child tax credit payments, Baner suggested, urging filers to compare IRS letters with bank statements.