Early this spring, in a major fit of cabin fever, I drew up some ambitious plans to re-landscape the backyard at my house in Massachusetts. It had been a desolate place ever since my wife and had I torn out the above-ground pool that the previous owners had installed, and I aimed to make it more welcoming: a rustic brick path would invite people in, gentle berms with perennials would draw birds and butterflies, and a flagstone patio with a fire ring would provide a warm gathering place. When the ground finally thawed I sprang into action and set to work digging a base for the brick path. It was there, in a muddy, 18-inch-deep hole, that I was standing when Katy came out of the house and told me that she had accepted a job offer in Omaha, the city where I am now sitting and writing this story.
All that is to say that a lot can happen in six months. Next Monday, October 16, is the tax filing deadline for anyone who filed an extension on their 2016 tax returns. People file for extensions for all kinds of reasons, ranging from mistakes on their employers’ 1099 or W-2 forms to pure procrastination (I’ve been guilty of that one on a couple of occasions). In any case, summer flies past and it always seems like the October extension deadline sneaks up without warning. Fortunately, with the deadline on a Monday this year, you have the whole weekend to prepare and file your return.
Here are a few things to keep in mind while you (or your accountant) are plugging away:
- Did you contribute to an IRA? Traditional and Roth IRA savings contributions need to be made by April 15th of the following year, so if you haven’t contributed yet for 2016 you’re too late. Don’t despair though – you can always get a head start on your 2017 contribution! Note that for SEP-IRAs, a type of savings plan popular with small businesses and self-employed people, contributions are still allowed up until the October extension deadline.
- An extension to file is not an extension to pay. If you filed an extension because you knew you would owe money to the IRS and wanted to kick that can down the road, you may have an unpleasant surprise in store. While an extension grants you an extra six months to file your tax returns, any tax that you owe is still due on April 15, and there may be penalties and interest added on if you wait until October to pay. If it seems like you are perennially owing money when you file, you should consider making quarterly estimated payments or (if you have a W-2 job) adjusting your withholding in order to spread the impact throughout the year.
- Don’t forget state taxes. A lot of states give an automatic extension if you don’t file by the April deadline (one wonders why the feds haven’t figured this out yet), but you’ll also have to file your state return this weekend if you haven’t done so. Most programs like TurboTax will ask you if you want to file a state return.
- Getting a refund? Save it. Many people treat their tax refunds as a bonus, often spending it on something that they couldn’t afford or couldn’t justify buying during the rest of the year. On the other hand, some people really need the cash infusion to pay for repairs or even medical work that they have been putting off just so they can pay their bills. There is nothing inherently wrong with that. But at a time when around half of Americans may not be able to cover an unexpected $400 expense, and unpredictable work schedules and timing of income affect many people’s ability to pay bills on time, having an emergency reserve can go a long way to break the cycle of having to constantly make up the difference between what you need and what you have on hand. So I challenge you to hold onto as much as your refund as you possibly can, and use it as a starting point to build your savings towards finding a new level of financial independence.
Happy filing, everyone. Only six more months until we all get to go through it again!