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American Morning

Last-Minute Tax Tips

Aired April 13, 2001 - 09:37   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: If you still haven't finished your taxes, we probably know what you're going to be doing this weekend, and boy do you need our help; it turns out we have some help for you this morning.

Joining us from New York with some last-minute tax tips is Barbara Raasch. She a partner with Ernst and Young's personal financial planning group and she will be answering some of your e- mails for you today.

Barbara, good morning, good to have you with us on what I'm sure is a very busy season for you.

BARBARA RAASCH, ERNST & YOUNG: Good morning.

KAGAN: Article in this morning's "New York Times" talking about the IRS and basically pointing out, it's not your father's IRS because just since '92 it's been cut by 1/6. So even though there aren't so many people home at the IRS, not a good reason to try to cheat on your taxes, I would imagine.

RAASCH: Oh no, not at all because what has been replaced is computers (sic), and so the IRS can compare all of the forms you get with the information they get over their computer lines.

KAGAN: Now we probably have some folks watching this morning that have procrastinated a bit and haven't quite gotten around to this tax business. Now that we're up against the line, any specific, good tips you can give, given that the deadline is just a few days away?

RAASCH: Well, probably the best tip is to void actually filing your return until it is complete and neat and accurate and you know that you have all of the information, including all of your deductions in the return. If you don't feel comfortable that you can say that by Monday, don't file the return, but don't avoid the deadline. Instead, make sure to file an extension and pay any tax that you believe you'll have due in on Monday with the extension and then file the return a little later.

KAGAN: Other than having to pay ahead, is there any penalty for filing extensions?

RAASCH: There's no penalty to file an extension and, as a matter of fact, a lot of people are afraid to file an extension because they think that increasing their audit risk. But, in fact, I think it reduces the audit risk...

KAGAN: Really?

RAASCH: Well, because if you file a return that's not complete, you may have to amend it. That, by definition, doubles your audit risk. Or if you file a return that's sloppy you've got a higher risk of being audited. So if you can't meet my criteria: completeness and, you know, neat and accurate, by Monday, file an extension. And as long as you file the extension and pay the tax in by Monday, you won't be subject to any penalties.

KAGAN: Well, our viewers are very excited to have the access -- an expert like you this morning. So let's go to our e-mail from our viewers.

This one from Joseph Jones, wondering: "Is there a minimum amount you would have to owe before asking for an extension?" -- speaking of extensions.

RAASCH: No, you should ask for an extension even if you don't think you owe anything because there's a late filing penalty that's 5 percent per month or any part of a month on any balance due. And so, for example, if you calculate your tax and you think there's nothing that's due, when you actually go to complete your return you may find that you owe $100. Well, then you'd owe more than $100 if you didn't file an extension because you'd also owe the 5 percent per month per penalty.

So definitely file an extension even if you think there's no tax due.

KAGAN: Very good. Let's go right to our next e-mail -- do we have that?

This one from Pepper in Kentucky: "How can a person pay their taxes with a credit card if they didn't file online? How is the return connected to the payment if this is done?"

Can you pay your taxes with a credit card, Barbara?

RAASCH: You can pay your taxes with a credit card, but you should think twice about this. It seems like a great thing to do, particularly if you're signed up with, you know, a miles program. But what the real program is with paying taxes with a credit card is that there's going to be a 2.5 percent fee, service fee, convenience fee, to do that; so your tax burden actually would go up by that 2.5 percent fee. And then if you don't pay the tax, you know, when the credit card statement comes to you, you'll have the normal interest charges as well.

So it can be an expensive way to do it.

KAGAN: I think we have time for one more e-mail.

And this one from Bill Sherman in Orange County in California; he says that since 1999 when he graduated from college he's been paying both principal and interest on his student loans. Is just the interest a tax deduction.

Barbara, what about student loans?

RAASCH: Student loans; there's never a tax deduction for principal on loans at all, so...

KAGAN: OK; forget that the idea.

RAASCH: It's a good try, right.

KAGAN: But what about the interest?

RAASCH: The interest is deductible.

KAGAN: And do people make mistakes about not looking at their student loans?

RAASCH: Well, a lot of times people with student loans are not able to itemize because they're claiming the standard deduction -- they haven't bought a home yet or whatever, and so that's why a lot of times you miss that deduction.

KAGAN: OK, a couple of seconds we have left, I think we have time to squeeze in one more e-mail; can we get one of those up? There we go.

This on is from Sue: "This year's instructions say it's not necessary for a dependent to live with you in order to claim the child dependent tax credit. Has that been true since the child dependent tax credit went into effect? If not, when did the `living with' requirement no longer become effective?"

That's from Sue. Barbara, I think this applies to a lot of folks who are divorced and may be sharing custody with their kids.

RAASCH: Right, right; and actually, I don't know the answer to that, I apologize. You'll have to go up to www.irs.gov Web site or read the Earnst & Young tax guide to get that answer.

KAGAN: Very good -- but that's a good Web site -- irs.gov is a simple Web site to remember.

KAGAN: Barbara Raasch from Ernst and Young, thanks so much for joining us. Have you done your taxes?

RAASCH: I actually am expecting to get them tomorrow.

KAGAN: Well, good to know, then, that an accountant can procrastinate, too.

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