The Sin Bin
With the end of the NFL season, my attention has turned to rugby and my new favorite rugby-ism: the Sin Bin. The Sin Bin is where a player goes if they commit a serious penalty; they are made to sit on the sideline for a designated number of minutes, leaving their team short-handed in the meantime. (Yes, it is just like the hockey penalty box, but more amusingly named.)
My other post-football season occupation is volunteering as a tax preparer. These two trains of thought come together this week as I present my top three candidates for inclusion in the Tax Preparation Sin Bin.
Our offenders are:
Firms that charge extravagant fees for simple tax preparation. Some may be names that you know, others are Mom & Pop shops. A few weeks ago, I came across a new market entry that boasts of its use of AI to prepare your returns. (Very on trend.) Preparation of a simple return for only $400!
Please. If you have a simple return — and I am going to tell you right now that statistically speaking, you probably do — there is no earthly reason why you should feel compelled to pay someone hundreds of dollars to complete a chore that will take you about 30 minutes. Unless you want to.
That is, I reserve the Sin Bin for tax preparers who play on the American public’s fear of math, taxes, and the IRS to convince you that you need to hire them for their magic juju that will land you the biggest refund possible. Even worse are the unspeakably evil firms that prey on the cash flow vulnerability of lower-income taxpayers, taking a chunk of their refund upfront when they file their returns. But if you decide to hire someone simply because completing your 1040 just isn’t what you like to do on a sunny afternoon, fine. Just don’t complain about the cost, okay?
Taxpayers who fail to make tax payments throughout the year. The US income tax system is based on “pay as you go.” If taxes are withheld from your paycheck, you will usually not have to write a large check in April if your withholdings are reasonably accurate. (And yes, I know that the W-4 form, while short, is somehow still inscrutable.) If you have 1099 income, however, you have not discovered the secret of not paying taxes. The IRS still expects you to “pay as you go” by filing a quarterly estimated payment. If you fail to do so, you may face an underpayment penalty in addition to your already too large tax due bill.
Who else is in the Sin Bin for this infraction? Retirees who draw their income from traditional retirement accounts. While it is usual that federal taxes are withheld from 401(k) and IRA distributions, state taxes are not. If you are drawing taxable income from a retirement account, be sure to pay your state income taxes throughout the year (assuming you are in a state with income tax).
So that you know, the federal quarterly estimated tax due dates for the 2024 tax year are April 15th, June 17th, September 16th, and January 15th of next year. State due dates generally (but not always!) mimic the federal IRS dates.
Taxpayers who postpone preparation until the last minute because they fear a large tax bill is due. I am pleading with you: extract your head from the sand. Ignoring the preparation of your return is not going to make the bill any smaller. All you have done is ensure that you have fewer months to develop your plan for dealing with this problem and have commensurately increased your stress level. And before you ask, no, filing an extension does not change when you must pay. An extension is an extension to file, not an extension to pay. Even if you do not complete your return by April 15th, you must make an estimated payment by that date to avoid penalties.
But what if your procrastination is driven by your knowledge that whatever the bill may turn out to be, you simply do not have the cash? In that case, you can request an IRS payment plan, allowing you to pay off your bill over several years. Yes, there is interest to be paid, but it will almost certainly be less costly than putting the tab on your credit card. You can learn about IRS payment plans here.
Your timeout is over. You may return to the game.
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