I recently filed my 2015 Income Tax Return. I’m one of those people who pretty much always delays filing my return by filing a Form 4868, Automatic Extension of Time (to October 15). There are several reasons for this, but one of the big ones is the very heartfelt thanks I get from my CPA, who like all good tax preparers, is very stressed out during the spring. Her favorite word is “Extension.”
There are other reasons, including that I’d rather have my CPA take care to get my Return the best it can be. We all know the term GIGO, which stands for Garbage In, Garbage Out. It simply implies that the better information I give to her, the better my return will be. This means accuracy, completeness, and paying the lowest legal amount.
Extending the filing date carries with it the responsibility to have paid in what I owe by April 15 every year. I estimate my tax liability using an EXCEL program I have developed over the years, and I keep it up to date as the year progresses. I am always reasonably close, so I overpay by a margin of safety. You can use services such as TurboTax or Bankrate.com to estimate your own tax liability.
Note that this doesn’t give the government a free one-year loan, because I pay taxes in quarterly installments, and any overpayment simply gets subtracted from my next quarterly estimate.
Other valid reasons to use the Extension include getting accurate information from investment accounts, IRAs, etc. People who have performed rollovers from IRAs or 401(k) Accounts will receive a 1099 from the sending company. These count as income, and will be picked up by IRS. But if the rollover is completed correctly, meaning within 60 days, the amount on the 1099 is not taxable. You have the responsibility to prove it, so I like to wait until I get the Form 5498 that shows the rollover to have been completed.
Stay with me here, as this can be considered important. The IRS deadline for Form 5498 is May 31, which continues to fall after April 15, but before October 15 every year (“Duh!”). That means that you will be unlikely to be able to include the 5498 with your return if filed by April 15. And that might lead to questioning by the IRS. I don’t want that; do you? It isn’t a tax or legal problem, so don’t get me wrong. It is simply avoidable.
What does all this have to do with the FairTax? Very simply, everything I just said would be 100% irrelevant! With the FairTax, there are no Tax Returns. There is no current version of the IRS. There is no CPA involvement (believe me, they will stay busy doing other work). How can this be?
About 10 years ago, the FairTax Book was published by former talk show host Neal Boortz and former Congressman John Linder, both of whom I have met. This collaborative effort resulted in a book that changed the way I look at things. And it changed a LOT of other people as well. But it has been a long time, and unless we try hard to forward the plan, it faces danger of being forgotten.
For those of you who are new to these things, I will highlight the points and try to get you to obtain the book from whatever source and read it cover-to-cover. In fact, I recommend that you read it twice, as it is short but so full of things you never considered, that it takes a while to sink in. Personally I have read it three times and have also used it to look up answers to questions I had.
- First, let’s get one thing straight – the name is FairTax, one word with 2 capital letters
- Is does not describe what someone’s idea of “fairness” is, as that varies among individuals and groups
- The FairTax taxes consumption, but not income
- It applies to purchases of new goods and services, but not to used things
- It is built into pricing of goods and services, which we call “imbedded cost”
- And it eliminates the IRS completely – gone, bye-bye, don’t call me, I’ll call you (don’t hold your breath)
More about the FairTax next week including details about the FairTax in operation