4 Steps For Filing A Tax Extension Before The Deadline
The average American may be able to do some last minute homework and get their taxes filed on time, but for travelers, it can be a major challenge to track down all the necessary information and documents since they work at multiple facilities and states every year. Even if you have all the necessary paperwork and can file right away, travelers should still apply for an extension, which will give you until October 15 to properly file your taxes, tax advisor and TravelTax.com owner Joseph Smith said. Reason being–It’s always better to take the extra time provided from an extension to file everything correctly than rush it and be at risk of potential massive penalties from an IRS audit in the future. “Multi-state professionals should make extensions a part of their lives as they usually don’t get their documents until late,” Smith said. For all of those forgetful folk and procrastinators out there, here are four easy steps to properly file your extension. Step #1: Breathe Just because you forgot to file earlier doesn’t mean the IRS audit fairy will knock down your door the next morning and steal the money from your wallet. An estimated 10 million Americans file for extensions every year, both to ensure accuracy and to get the most out of their tax returns. Extensions will help you avoid a failure-to-file penalty, which starts at five percent of your unpaid taxes for each month or part of a month that it’s late, up to a maximum of 25 percent. Keep in mind that this doesn’t excuse you from the late payment penalty if you owe money, but the penalty for paying late is much lower than filing. It’s typically one-half percent of your unpaid taxes, but it also maxes out at 25 percent. Step #2: Get Your Extension Form You can download the extension form by clicking here, or by visiting the IRS website. You can file your extension online or by mail. If you choose to file by mail, make sure to double check the bottom of the form because it has the mailing address where you will send the form. Also, make sure the mail is postmarked by April 17, or April 18 if you live in Maine or Massachusetts. Step #3: Check your state tax extension rules If you worked in a different state last year, you’ll also need to file state tax extensions. It gets a bit tricky here because some states will automatically grant you an extension if you file for a federal extension, but not all of them do, and the failure to file penalty is sometimes even harsher at the state level. You can find a full list of tax extension rules by state here. Step #4: Do your homework Now that your extension is squared away, it’s time to actually file your taxes. There are a wide variety of filing software programs you can use, but TurboTax is the most popular choice. If the process seems too complicated or you’re not sure what information you need, consider getting help from a tax professional who understands how to properly file for travelers. Consulting with a tax pro can help you avoid errors on your forms, and can also set you up for success by helping you establish a tax home or avoid filing mistakes on your forms because of the new tax reform changes.
Here’s Why Establishing A Tax Home Is Important For Travelers
Thanks to President Donald Trump’s approval in December of the most extensive changes to U.S. tax law in the past 30 years and the recent start of income tax filing season, millions of U.S. citizens have taxes on the brain, travel nurses included. The new tax changes won’t affect the filing process for 2017 taxes. They do eliminate employment expense deductions starting this year, but they won’t affect the tax-free stipends available to travelers, as long as they’ve established a tax home. But what is a tax home? For a busy professional who regularly has to travel for business, qualifying for tax-free stipends is a simple process, but for travelers, it’s a bit more complex. Definition and benefits of a tax home The IRS Tax Code defines a tax home as the geographical area where workers earn most of their income, which may not be the same place as their permanent residence–the place where they own a home, where their family lives or where they’ve been issued a driver’s license. As an example, say an employee works for a company in Michigan eight months out of the year, but that person owns a home in Wyoming to stay close to relatives. The employee’s company asks him to travel back to Wyoming for a business-related reason, so he decides to stay at home because it’s easier than booking a hotel for a weekend. Even though this person traveled to their personal residence, the employee’s travel expenses are still technically deductible because he is leaving his tax home on business. Having a tax home means big savings in terms of a travel nurse’s ability to accept tax-free stipends, or per diems, which can add up to anywhere from $20,000-$50,000 in tax-free benefits. “This can result in $6,000-$9000 per year in tax savings,” said Joseph Smith, a travel nurse tax expert and owner of TravelTax.com. “But then you have to remember to subtract your living expenses from that (savings figure),” Smith said. “If you’re paying 600 a month for an apartment, which is then $7,200 a year, that’s a significant amount from savings. That’s why you don’t see travelers living in places like San Francisco unless they have a tax home due to a regular job in the area.” Some travel nurse staffing agencies also won’t give contracts to nurses who don’t have a tax home in order to avoid being penalized during an IRS audit because of a travel nurse who accepted tax-free stipends without a tax home. Criteria to qualify for a tax home If this geographical definition was the only one used to determine who has a tax home, travelers would never qualify since the job requires frequent relocation, meaning there’s not one place where they earn a majority of their income. Thanks to clarifications of the code in IRS Publication 463, three factors are used to determine tax home status. At least two of these three criteria must be satisfied in order to qualify for a tax home. If only one factor is met, that person is considered an itinerant worker, meaning their tax home is their permanent residence and they don’t qualify for tax-free stipends or reimbursements. You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. You have living expenses at your main home that you duplicate because your business requires you to be away from that home. You have a member or members of your family living at your main home or you often use that home for lodging. Since most travelers don’t work at home, they often try to meet the second and third criteria to establish a tax home. The third criteria is easy enough to meet by returning regularly to a home or apartment owned or rented, but their tax home status could be disrupted by not matching duplicate expenses. Duplicate expenses While it’s not stated in bold print, duplicate living expenses need to be significant enough to meet the second criteria. For example, say a traveler rents an apartment for $800 per month in their home state of Arizona, and leaves for a five month job in Colorado. They have a friend in Colorado who owns a home and will let them stay in a spare room for $50 a month while they’re working. Even though the traveler is paying the friend to stay there, that incredibly low “rent” charged by their friend won’t qualify as duplicated expenses. That traveler would need to at least pay fair market value for rental of the space, which differs based on location but can be determined by comparing local rental listings for similar properties. Temporary worker status It is possible for travelers to avoid paying duplicate expenses and still qualify for a tax home by meeting the first criteria and planning to work some in their home state, but they must make sure they are a significant distance away from their permanent residence or risk losing their temporary worker status. A temporary worker is someone who fulfills job appointments lasting 12 months or less, according to the U.S. Department of Labor Statistics. If a traveler works for more than a year in a single geographic area, it’s considered an indefinite job appointment. That means their previous tax home is moved to their current job because it’s their new primary location of income, and they are classified as an “itinerant” worker. This rule applies even with short-term contracts. If a traveler plans to work in a location for eight months, then accepts another five month contract in the same area but at a different hospital, the job assignment would still be considered indefinite rather than temporary since they planned to stay for 13 months total in the same geographic region. Unfortunately, there isn’t a specific distance a traveler needs to be away from their previous placement to be considered safe, and the “50-mile” rule travelers might hear about is not
Tax Law Changes: What You Should Know as a Travel Nurse
If you’re a healthcare traveler, you should take note of two important tax changes as a result of the 2018 tax bill. The good news: your per diems and stipends are safe. While the IRS will likely change how those are reported in the future, you won’t be taxed on those as long as you’re playing by the IRS’s rules. The bad news: reimbursements are all the help you’ll have to cover expenses while on the road. “The biggest change, as of January 1, is the inability to deduct any expenses beyond what’s covered by reimbursements,” says Joseph Smith, the head of Travel Tax, a tax preparation company focused on mobile professionals. “For some travelers, that’s a significant amount.” So what’s deductible? You can no longer deduct expenses for extra miles traveled beyond your allotted stipend. You also can’t deduct expenses for meals once your per diem amount has been met. The same applies for housing. But it’s not just expenses covered by stipends and per diems. Things like new state licensure to practice can’t be deducted. Neither are uniforms or footwear, or CEUs. How This Affects You As Smith points out on his site, if you don’t itemize those expenses anyway, tax changes won’t be all that significant. But if you incur significant expenses when taking a new assignment, losing the ability to deduct employment expenses could result in a roughly $660 increase in taxes owed. And it’s worse if you own a home. Without the ability to deduct business expenses, you may struggle to get deductions above the new standard of $12,000. Couple that with the loss of personal exemption, and that could mean roughly $1,500 more in taxes owed. Things To Pay Attention To The biggest thing to remember, and something Smith reminds us of, the bill was only signed into law one month ago. While we know what’s in it, there hasn’t been enough time for state and local governments to modify tax codes in response to the federal changes. That means you should watch the actions of state and local representatives in the coming months to identify further changes. Some Good News The IRS released adjusted withholding tables to employers on January 18, and changes to withholdings have been implemented. The exact date depends on how quickly your employer implements these changes into their payroll system and how often you get paid. But, you shouldn’t have to make adjustments to the W4 already filed with your employer. The new withholding tables are designed to work with the current forms. The IRS recommends you confirm your withholdings are accurate. They’ve released a new online withholdings calculator and Form W-4 to assist you. For more information on Form W-4 and the new withholdings tables, visit the IRS site.