9 last-minute tax tips

Consider these tips as you tackle your tax returns for 2017.

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Key takeaways

  • Take advantage of deductions.
  • Request an extension if you need one.
  • Be prepared to pay what you owe, even if you file for an extension.
  • Have your 2016 adjusted gross income amount handy if you're e-filing.

If you haven't done your 2017 taxes yet, you're probably not alone. Nearly 3 out of 4 people admit to procrastinating at least sometimes, according to Fidelity's 2018 Financial Procrastination Study (PDF).1 But whether it's because the task feels too overwhelming or you're just overly optimistic about your time management skills, procrastination about tax matters can be stressful. There are many good reasons to wait to file taxes but sometimes waiting until the last minute could cause more anxiety than simply getting the job done.

The good news is, this year you have 2 extra days to prepare: The tax-filing deadline is April 17, not the traditional April 15.

To help you get going and avoid late fees, consider these tax-filing tips.

Try to lower your taxable income

A contribution to a traditional IRA may help reduce taxable income for the year, and, in turn, reduce federal income taxes, so long as you are eligible for this tax deduction.2 The tax-deductible contribution limit for the 2017 tax year is $5,500. For those who are age 50 and over, the limit is $6,500, and you have until April 17, 2018, to open and contribute to an IRA.

Read Viewpoints on Fidelity.com: 7 things you may not know about IRAs.

Self-employed individuals and freelancers can open a Simplified Employee Pension plan—more commonly known as a SEP IRA—even if they also have a full-time job as an employee. If you earn money freelancing or running a small business on the side, you could take advantage of the potential tax benefits from your side gig. With a SEP IRA, contributions may be tax deductible, just like with a traditional IRA, but the SEP IRA has a much higher contribution limit. For 2017, the contribution limit is 25% of pretax income (20% for the self-employed) or $54,000, whichever is lower. The deadline for 2017 contributions is the tax deadline—April 17, 2018. For more information, visit the IRS's Retirement Saving Tips for Individuals.

Gather and review paperwork

Review bank statements, year-end investment reports, checkbook registers, credit card statements, and the "statement of benefits" from your health insurance company to see whether there are deduction opportunities. A review of your 2016 tax return can help remind you of what you typically deduct. Check all tax forms from your bank, mortgage provider, and financial services provider. If you have student loans—for you or your children—make sure you have the related tax forms for deductible interest.

Read Viewpoints on Fidelity.com: Tips for deducting more at tax time.

File electronically

Filing your tax return electronically is faster, easier, and less prone to errors. You can access the IRS's e-file service using commercial software, through a professional tax preparer, or directly from the IRS. If you choose to e-file, be aware that you might be asked to enter the adjusted gross income amount from your 2016 tax return to verify your identity. It's part of the IRS's initiative to increase security.

File even if you can't pay

Filing a tax return on time and paying less than you owe isn't nearly as costly as not filing at all. In fact, the penalty for not filing a tax return could be as much as 10 times greater than the penalty for not paying in full, according to the IRS. The late-filing penalty is 5% of the unpaid tax amount for every month your return is late, up to a maximum of 25%. If you file more than 60 days after the due date, the minimum penalty is $135 or 100% of your unpaid tax, whichever is less. On the other hand, if you file a return but don't pay all that you owe, the late-payment penalty is .5% of the tax owed for every month, up to a maximum of 25%. The late-payment penalty is waived for months in which you also owe the late-filing penalty.

File an extension if you're not ready

If you don't have complete information or simply need more time to prepare your return by the April deadline, you can get a 6-month extension. But keep in mind that the extension to file is not an extension to pay. You still have to send the IRS the amount of tax you owe by April 17 or face a late-payment penalty. If you choose to get an extension, you can fill out and submit Form 4868, or you can get an automatic extension by estimating your tax liability and making an electronic payment using IRS Free File. You can also request an extension when making a payment through the IRS's Direct Pay or Electronic Federal Tax Payment System.

Act quickly if you suspect you're a victim of fraud

One of the biggest reasons the IRS recommends that you file your taxes early is to help protect yourself from tax fraud. A common tactic used by thieves is to a file a fraudulent tax return under a stolen identity and collect a refund. Keep a copy of your return; if you file your legitimate return and receive a notice that a return has already been processed under your Social Security number, complete IRS Form 14039, Identity Theft Affidavit, attach it to a printed copy of your return, and mail it to the IRS.

Also, file an identity theft complaint at IdentityTheft.gov, and contact 1 of the 3 major credit bureaus to place a fraud alert on your credit records. You should also contact your financial institutions and alert them to the situation. For more information, read Viewpoints on Fidelity.com: Don't fall prey to financial scams.

Comply with the Affordable Care Act

The Tax Cuts and Jobs Act repealed the penalty associated with the individual mandate in the Affordable Care Act (ACA)—but that doesn't go into effect until 2019. For the 2017 tax year and 2018, taxpayers are still required to have health insurance or pay the penalty.

If you didn't have the required health coverage last year, it's actually breaking the law if you choose not to pay the penalty and instead take the chance that the IRS won't enforce it.

Suggest working kids file a return

Many people who don't meet the general requirements for having to file a tax return and don't think they owe income tax are inclined not to bother filing. But it might be a good idea anyway. For example, young people who worked over the summer or after school might have had taxes withheld from their pay. If they don't file a return, they won't get a refund. Also, you need to file a return to receive "refundable" tax credits, such as the earned income credit, the additional child tax credit, or the American opportunity tax credit.

Read Viewpoints on Fidelity.com: Kids and taxes: Answers to 6 top questions.

Make adjustments if you're due a refund

A refund from the IRS isn't a gift from the government, it's essentially an interest-free loan you extended to the IRS that is now being returned to you. A large refund is probably an indication that you're having too much tax withheld from your paycheck. If so, tell your employer you would like to revise form W-4, and use the IRS's withholding calculator as the starting point for making an adjustment.

When your 2017 tax return is finally complete and submitted, don't simply file it away and forget it. Just as a large refund is an indication that you might be having too much withheld, other experiences this year could illustrate what you could do differently next year. For instance, you might change your tax preparation or filing strategy—or you could decide to contribute a little bit to an IRA over the course of the year rather than rushing to deposit money in the run-up to the tax deadline. At the end of the day, the important thing is that your taxes are done—at least until next year.

Next steps to consider

Take advantage of potential tax-deferred or tax-free growth.

Determine if you're contributing enough to your savings.

Visit Viewpoints tax section for more insights.

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1. Fidelity's Financial Procrastination Study was conducted among a sample of 2,052 adults comprising 1,020 men and 1,032 women 18 years of age and older. Responses were collected December 7-13, 2017 by independent research firm ORC International. Responses were weighted based on US Census data to reflect accurate representation of the total U.S. population 18 years of age and older.
2. For a Traditional IRA, full deductibility of a contribution for 2017 is available to active participants whose 2017 Modified Adjusted Gross Income (MAGI) is $99,000 or less (joint) and $62,000 or less (single); partial deductibility for MAGI up to $119,000 (joint) and $72,000 (single). In addition, full deductibility of a contribution is available for working or nonworking spouses who are not covered by an employer-sponsored plan whose MAGI is less than $186,000 for 2017; partial deductibility for MAGI up to $196,000. For 2018 full deductibility of a contribution is available to active participants whose 2018 Modified Adjusted Gross Income (MAGI) is $101,000 or less (joint) and $63,000 or less (single); partial deductibility for MAGI up to $121,000 (joint) and $73,000 (single). In addition, full deductibility of a contribution is available for working or nonworking spouses who are not covered by an employer-sponsored plan whose MAGI is less than $189,000 for 2018 partial deductibility for MAGI up to $199,000.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

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Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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