Education >> Taxes, Taxes, Taxes

Don't File Your Taxes Until March!

Avoid the risk that you'll have to file an amended return

Many taxpayers rush to file their tax returns as quickly as possible. Ordinarily, that’s fine. But if you own mutual funds, don’t file your tax return before March 1!

Here’s why: Everyone involved in the financial industry — including employers, banks, insurance companies, mutual funds and brokerage firms — is required to mail W-2s and 1099s by January 31. But in 2006 and 2007, either because of last-minute changes in tax law or accounting reconciliations, many mutual fund companies and brokerage firms discovered that their 1099s contained incorrect information — which forced them to issue “amended” 1099s.

This was not only very expensive for the firms — they doubled their printing, postage and mailing costs — it was also a huge headache for their clients who had already filed tax returns based on the original documentation. These hapless consumers found themselves forced to re-do their returns and file amended tax returns, adjusting the amount they owed or were due in refunds — and paying their tax preparer additional fees to do the extra work.

It looks like 2008 will be the same. In fact, at least one custodian has already announced that it has received IRS permission to mail its 1099 forms in mid-February 2009, and other firms are expected to make similar announcements. Others that plan to mail their forms in January could find themselves issuing amended forms weeks later.

Therefore, if you own mutual funds, we recommend that you do not file your tax return before March 1. Waiting a few extra weeks might help you avoid the hassle and costs of having to file an amended return.

Waiting shouldn’t bother you. But you might be annoyed if you’re expecting a large refund. If that’s the case, you might be handling your taxes incorrectly. That’s because you’re not supposed to be due a large refund — if you are, then you’re giving the IRS a tax-free loan for months. See if you can correct this by reducing the amount of money that your employer withholds from your paycheck.

Remember: Refunds are not gifts from the IRS, but simply a return of the money that’s yours in the first place.

Edelman Financial Services (EFS) does not provide advice pertaining to tax matters. Information regarding tax matters which may be provided by EFS is of a general nature only, and is not to be construed as constituting specific advice. Such information can be provided only by a tax professional and EFS recommends that individuals consult a tax professional for advice concerning tax issues.

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