Taxpayers may have been surprised to find they had three extra days to file their taxes this year and may be a bit confused.
This year's deferral resulted from the celebration of Emancipation Day — a legal holiday only recognized in Washington, D.C., that celebrates President Lincoln signing a declaration to free the slaves in the nation's capital.
With April 15 falling on a weekend the next two years and yet another Emancipation Day conflict during that time, 2019 will be the next year Tax Day takes place on the "traditional" deadline again.
For the approximately 20 to 25 percent of taxpayers who, according to the IRS, file their taxes two weeks before the deadline and who likely relish the stress of procrastinating over this annual responsibility — enjoy the additional days you will receive in the next few years!
For those looking for a less stressful tax season, what actions can be taken throughout the year to be better prepared for filing accurate, timely tax returns?
Although every taxpayer's situation is different, here are a few good practices to keep in mind. These apply whether you work with a CPA to complete your taxes or file your own.
Organize your financial information. Your financial information can be stored online, in old-fashioned file folders or together in one large envelope; just make sure you keep everything you need for timely completion of your taxes together. If you don't have a filing system, start one. Numerous checklists are available online to help taxpayers get and stay organized.
Having an organized process for gathering and storing tax-related information is one of the most important actions taxpayers can take to prepare for the tax process. File year-end forms such as W-2s, independent contractors' Form 1099-MISCs, mortgage interest statements, retirement account distributions and brokerage account statements as they arrive.
Don't forget about receipts for charitable contributions: File receipts for deductions when they are made so you're not desperately looking for documentation or calling the charity the following April.
Review your personal situation. Major life changes such as marriage, divorce or birth of a child are always top of mind at tax time. However, taxpayers should consider other factors that may affect their tax situation, including money spent on job search activities, relocating for a job, starting a small business or working from home on a regular basis. As always, make sure you have the proper documentation for any activities that apply to your tax situation.
Understand tax law changes. This doesn't mean you need to go back to school to get your CPA license; however, taxpayers should be aware of any new legislation that may affect their tax situation.
Common areas for consideration include:
• Changes to the amount that can be contributed to a qualified retirement plan
• Higher income limits for making Roth IRA contributions
• Updates to regulations concerning trusts and estates
• Different mileage rates for driving for business, medical or volunteer purposes
• New rules for various tax credit programs
• Updates to deductions for medical expenses
• Changes to state tax rules
Free resources are available to help taxpayers understand the implications of new or changed tax laws, including resources available through AARP and the Minnesota Society of CPAs.
Don't forget health care. Health care providers and employers are now required to provide taxpayers with documentation of health care coverage (Form 1095). This documentation is required whether coverage is provided from an employer, through a private organization or through MNsure. Make sure this form is included with your tax documentation.
Retain your records. Although audits for individuals are rare, it's always best to be prepared in case the IRS contacts you asking for additional information on your tax return.
As a rule of thumb, it's best to keep records for seven years, but the number of years will depend on the action, expense or event being documented. Details on how long to retain specific records can be found at www.irs.gov.
Protect your identity. If procrastinators need additional motivation to file tax returns earlier, let me provide it: an increase in tax fraud. Because a significant portion of tax scams occur when duplicate tax returns are filed using the same Social Security number, the earlier you file your returns, the fewer opportunities exist for you to be a victim of tax identity theft.
Keep in mind that the IRS does not contact taxpayers by phone or e-mail to verify tax information or request payment of a tax bill. Should you receive such a call or e-mail, do not provide any information and contact local law enforcement and the IRS or your tax preparer immediately.
The key to a smooth tax process in 2017 is the same, whether you file early or wait until the final hours before the tax deadline: Start now. With proper planning throughout the year and a personal process in place, you can avoid last-minute hassles — no matter when Tax Day happens to land.
Partner Mark Bakko leads Baker Tilly's Minneapolis tax practice.