Here are six last-minute things to keep in mind as the due date for most individuals’ 2012 federal income tax returns approaches.
File on time, pay any taxes due
The due date for 2012 federal income tax returns is April 15, 2013. If you’re not going to be able to file your federal income tax return by the due date, file for an extension using IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Filing this extension gives you an additional six months–to October 15, 2013–to file your return. It’s important to understand, though, that the extension does not give you extra time to pay any taxes due. If you do not pay any taxes you owe by April 15, 2013, you’ll owe interest on the tax due, and you may owe penalties as well. Special rules apply if you’re living outside the country or serving in the military outside the country on April 15, 2013.
Were you affected by delayed IRS forms?
Special rules may apply if you file an extension for a 2012 federal income tax return that includes one of the forms that weren’t available until February or March (because of the enactment of the American Taxpayer Relief Act). Delayed 2012 forms include Form 3800, General Business Credit; Form 4562, Depreciation and Amortization; and Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits).
If you file for an extension, estimate your expected tax liability in good faith, and pay the estimated amount of tax that you calculate by the original due date of the return, the IRS has announced that it will provide relief from the late-payment penalty (the failure-to-pay penalty) in cases where additional tax is owed and paid by the extended due date of the return. In other words, when you do file your return, if additional tax is due the IRS will waive the late-payment penalty (provided you pay the additional tax by the extended deadline). However, interest will still apply to any tax payment made after the original deadline. For more information, see IRS Notice 2013-24.
Remember 2010 Roth IRA conversions
Generally, when you convert funds in a traditional IRA or a retirement plan to a Roth, you pay tax in the year that the conversion takes place. If you converted amounts to a Roth IRA or a designated Roth account in 2010, however, a special rule applied–individuals who did a Roth conversion in 2010 were required to include half the taxable amount in their income for 2011, and half in their income for 2012, unless they elected to include the entire amount in their 2010 income. If you did convert to a Roth in 2010 and did not elect to pay taxes on the amount on your 2010 return, remember to include any required taxable amount from the conversion on your 2012 return. If you received a Roth distribution in 2010 or 2011, the amount you should report on your 2012 tax return may be affected, so check with a tax professional.
Reconsider 2012 Roth IRA conversions
If you converted a traditional IRA to a Roth IRA in 2012, it’s not too late to undo the conversion. This is referred to as a recharacterization, and you’re treated for tax purposes as though the conversion never happened–you wind up with a traditional IRA again and no tax bill for the conversion. You generally have until the due date of your federal income tax return, including extensions, to recharacterize your 2012 Roth conversion (i.e., an extension of time to file your return also extends your time to recharacterize; and if you file your 2012 return on time, special rules still allow you to recharacterize up until October 15, 2013). If you do recharacterize your 2012 conversion in 2013, you’re allowed to convert those dollars (and any earnings) back to a Roth IRA (“reconvert”) after waiting 30 days, starting with the day you transferred the Roth dollars back to a traditional IRA. If you reconvert in 2013, then all taxes due as a result of the reconversion will be included in your 2013 federal income tax return.
Review casualty loss deduction rules
If you were one of the many individuals who suffered property damage or loss as a result of late-2012 storms (e.g., October’s Hurricane Sandy), you may be entitled to a deduction for storm-related losses that weren’t covered by insurance. Review IRS Publication 547, Casualties, Disasters, and Thefts for details of the casualty loss rules.
Understand gift tax return requirements (if you made gifts in 2012)
If you made gifts in 2012, you may need to file a Form 709 gift tax return by April 15, 2013.
A gift tax return must be filed for 2012 if you made gifts during 2012 other than:
- Gifts to your U.S. citizen spouse
- Outright gifts to qualified charities
- Present interest gifts totaling $13,000 or less to any individual
- Amounts paid on behalf of any individual as tuition to an educational organization or for medical care to a medical care provider
You must file a gift tax return if you wish to split gifts with your spouse. You may also wish to file a gift tax return if you make gifts of hard-to-value assets. If you disclose the transaction on the gift tax return, the IRS generally has only three years to challenge the value.
If you file a Form 4868 to automatically extend your due date for filing your 2012 income tax return, a six-month extension of time to file the Form 709 is also granted. If you do not file an extension request for your income tax return, you can file a Form 8892 to automatically extend the due date for the gift tax return to October 15, 2013. An extension of time to file the gift tax return does not extend the time to pay the gift tax; you must estimate and pay the gift tax due by April 15, 2013. But even if you made taxable gifts and have to file a gift tax return, a $5,120,000 (in 2012) applicable exclusion amount is available to protect gifts from gift tax.