Late Filing 101: What Happens When You Forget About Uncle Sam
If you’ve already missed the tax filing deadline, you’re not alone. Many caregivers forget about their loved ones’ taxes. The most important thing you can do is file as quickly as possible. Gather all your documents and get to work. Your loved one is not going to go to jail because they filed a few weeks or months late, and acting to correct the oversight is the very best thing you can do to get back into the good graces of the IRS.
In most cases, the IRS will determine a penalty for late filing, as well as fees and interest associated with any late tax payments. If you file quickly, these fees should be fairly minimal. The good news for most seniors is that given their fixed income, their tax burden is likely to be either very low or nonexistent.
In some cases, you can avoid paying a penalty by asking for a penalty waiver. Simply attach a statement to your tax return explaining why your loved one is filing late. If they have dementia or another serious illness that compromises their ability to file, the IRS may offer leniency. And if it turns out that the IRS owes your loved one a refund, then there won’t be any penalty for filing late in the first place.
But what if your loved one goes months, or even years, without filing? In some cases, the IRS will bill your loved based on its own assessment. If you haven’t heard anything from the IRS, though, contact a tax attorney. Tax attorneys can help you file the right documents, minimize fees and interest, and possibly even get your loved one that waiver in the event that they do have dementia or another serious illness.
Do Seniors Have to File Taxes?
It’s easy to get confused about when or whether seniors have to file tax returns. For seniors living exclusively on Social Security, there may be no need to file taxes.
Seniors who are single and earn more than $13,600 in gross income (aside from Social Security) in a year must file taxes. Married couples must file when they jointly earn $26,600 or more. If one partner still works and the other earns money from Social Security, deduct the Social Security earnings from the total earnings to discern whether the couple must file taxes.
Even if your loved one does not have to file a tax return, doing so can prove beneficial if they are eligible for a refund. Seniors who file with significant deductions and are also eligible for tax credits are more likely to get a refund. This is essentially free money, so if you think your loved one might fall into this category, gather all of their documentation and get to work. If you’re not sure, then consult a tax professional.
Things to Remember When Preparing Taxes for Seniors
Caring for an ailing loved one is exhausting enough. Throw taxes into the mix, and it’s enough to leave most caregivers feeling overwhelmed and frustrated. It doesn’t have to be this way. These simple strategies can help you master the art of filing taxes for your senior loved one.
Use the Right Documents
It’s tempting to try to guess your loved one’s income or the value of their deductions, especially if you’re in a rush. When the IRS comes knocking with an audit and fees, you may regret that decision. So start early, and spend some time gathering your loved one’s documentation. Every tax situation is different, but some of what you might need includes:
- Any income or earning statements for the previous year. That includes Social Security earnings and interest statements on interest-bearing accounts.
- Documentation for any and all deductions. Try going through your loved one’s bank statements.
- The previous year’s tax returns. You technically don’t need these for the actual filing process, but they can be a useful guide to basic information such as your loved one’s Social Security number. If your loved one has dementia and can no longer provide these basic details, finding a previous year’s return can help.
- Receipts and other documents reflecting small-business sales or payments for consulting work.
Understand Self-Employment Taxes
If your loved one has a hobby business, such as selling crafts online or at fairs, or if they work as a consultant, they may have to pay self-employment taxes. They don’t have to make a lot of money to have to pay these taxes, either. At just $400 in annual earnings, self-employment taxes kick in. So be prepared to manage this aspect of your loved one’s tax returns, and keep diligent track of any and all earnings.
These taxes are supposed to be paid on a quarterly basis, based on a person’s estimated earnings. If your loved one did not file quarterly, then they’ll have to pay a late filing penalty, as well as interest on the late taxes. Plan to begin filing quarterly estimated payments next year if you want your loved one to avoid having to pay the penalty again.
Because self-employment taxes can be complicated, it may be best to work on them with the help of an accountant.
Don’t Forget About State Tax Returns
Many (but not all) states require seniors to pay income taxes. Even if your loved one does not have to file federal taxes because they do not meet the minimum earning threshold, they may still have to file a state return. Check your state’s rules for a guide to senior state income taxes.
Seek Expert Assistance for Complex Situations
For many seniors with uncomplicated taxes, filing a tax return may be as simple as claiming the standard deduction and writing a check. If your loved one has a more complicated situation—such as significant deductions, outstanding tax debt, a history of not filing, or business taxes—work with an accountant. It usually only costs a few hundred dollars to hire an accountant, but the tax savings (and the stress relief) are typically well worth the cost.
AARP offers free tax filing assistance to seniors. You can find a location that offers help here.
Know What You Can Deduct
In 2018, seniors were eligible for a standard deduction of $1,300 more than the regular standard deduction. For a single senior, this adds up to a standard deduction of $13,300. For most seniors, this is a significant deduction. But for those with significant deductible expenses or a successful small business, it may make more sense to itemize deductions. Some common senior tax deductions include:
- Charitable donations, including the resale value of items (such as used clothes) donated to charity.
- State sales tax.
- Business expenses such as supplies, office equipment, memberships, and mileage.
- Medical expenses, including dental care and insurance premiums, that exceed 10 percent of the person’s adjusted gross income.
- Mortgage interest.
Get Help Paying Taxes
If your loved one owes taxes they cannot pay, don’t ignore the issue. The IRS is typically willing to work with taxpayers who struggle to pay their tax burden. Pay as much as you can, then contact the IRS about your options.
In most cases, you can set up a payment plan that allows you to pay your taxes over months or even years. If you can pay a large lump sum, you may also be eligible for what’s called an offer in compromise. This is akin to a settlement of your loved one’s tax debt, but it’s wise to speak to an accountant or lawyer before making such an offer.
Unpaid family caregivers provide nearly $500 billion worth of care each year. Most work at least as many hours as caregivers do, as they might at a regular part-time job.
If the burden of paying taxes and managing your loved one’s finances feels overwhelming, don’t worry, there’s hope. Senior living offers numerous ways to enjoy a fulfilling retirement. To compare costs and learn more about the financial requirements of senior living, check out our cost comparison calculator.