The IRS begins accepting tax returns for processing in mid-January. But taxpayers should be cautious filing their tax returns too early because they still might receive additional third-party documentation later in the year. For example, a crewmember might have worked for an employer that issues 1099s. By the time the employer mails the 1099 and it’s received, it might already be late February. The problem becomes exacerbated when crew are traveling for extended periods of time and don’t receive their mail.
Over the past few years, I have noticed many crew positioning themselves to purchase real estate. One of the conditions that underwriters require when applying for a loan is that the potential borrower provide two of their most recently filed tax returns including a “current” year tax return. Unfortunately, a 2018 tax return is already a year old and not considered “current” enough. The lender will then push the borrower to file their tax return as soon as possible, resulting in an incomplete filing.
Filing your tax return early may be the goal of many taxpayers, but it is not always the most efficient course of action.
Many lenders will not consider the tax return filed until the IRS has accepted and processed the return, which could take between two to eight weeks depending on whether or not the tax return was paper or electronically filed. If a taxpayer files their tax return on January 15, it might not be considered “processed” until early to late February.
Yacht crew are particularly more vulnerable to these date changes because the time spent attending to personal issues is sometimes scheduled months ahead of time. A crewmember who has been traveling for extended periods of time may want to allocate a few weeks to meet with real estate agents and mortgage brokers while they are in town.
Filing your tax return early may be the goal of many taxpayers, but it is not always the most efficient course of action. Many crew have unique tax situations that may prohibit early filing. For instance, if you have stock sales, K-1’s, retirement distributions, interest, dividends, etc., this information is reported on third-party documentation that’s sometimes not received until February or March. If you file a tax return based on partial information, you will probably receive a notice from the IRS inquiring about missing information, which may lead to filing an amended tax return — extending the process by six months.
Carefully review your previous year tax return and make note of all the third-party documentation you might expect. Then monitor current year records so you know what might be missing. If you’re expecting a 1099 or W-2 from an employer and still have not received it by February 15, you can call the employer and request an email copy. In the end, you just want to make sure you’re filing a complete and accurate tax return.
This article originally ran in the February 2020 issue of Dockwalk.