How well do you know tax history?

As April is tax month, included here is a short quiz to see how well you know your tax history.

While Abraham Lincoln’s administration introduced the income tax to finance the Civil War, the first modern 1040 Individual Income Tax form was introduced in 1913. How well do you know what was on this original 1040? Enjoy!

Question What was the original due date of the initial 1040 tax form?
Answer March 1st, 1914. Failure to file on time could lead to a fine of between $20 and $1,000. A 30-day extension by reason of sickness or “absence” could be granted by the tax collector. Today we have an additional 45 days to file our tax returns (April 15th) and can file for a six-month extension.

Question What was the tax rate applied to most individuals’ income?
Answer The “normal” tax applied to most 1913 tax returns was 1%.

Question If you had Taxable Income of over $50,000 you became subject to the “Super Tax”. What was the maximum tax rate on these excess earnings?
Answer Six percent. 2% was owed on income from $50,000 to $75,000. The maximum tax rate of 6% was owed on Taxable Income over $500,000. The 1913 tax brackets were; 1%, 2%, 3%, 4%, 5% and 6%. Compare this to our current tax brackets of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.

Question Was there a marriage penalty built into the
original Form 1040?
Answer Yes. If single (or married but not living with your spouse) your exemption amount was $3,000. If you lived with your spouse your exemption amount was only $4,000. If both you and your spouse worked (a rare event in 1913), you could divide the $4,000 exemption any way you wished to minimize your taxes.

Question Name two things that are currently taxed, but were not
taxed on the original 1040 tax form?
Answer There were many, but perhaps the most common untaxed items were dividends and net earnings from corporations that were already taxed. The double taxation of corporate earnings that we experience today would be added later.

Question True or False. All the original tax returns required a signed affidavit
before an authorized officer of the government prior to being filed.
Answer True. All properly filed tax returns required affidavits made before an officer authorized by law to administer an oath of accuracy. This could be a justice of the peace, a magistrate, or a certificate of the clerk of the court. Mailing in your tax return was not an option in 1914.

Is an Extension a Good Idea?

Maximizing Your Refund PowerThe clock is ticking down to the pending tax-filing deadline of April 15th.

Here are some examples when filing an extension might make sense other than rushing to meet the filing deadline.

Check Incorrect Form 1095-A. If you received health insurance through the new Healthcare (Marketplace) Exchange, you may have received an incorrect Form 1095-A recapping this activity. Over 800,000 of them were sent out in error. If it impacted you, it might make sense to wait for a corrected form.
Check Other Form Errors. If you receive a W-2 or Form 1099 that has errors, you may also wish to wait until you receive a corrected form. This delay may help you avoid a tax form mis-match with IRS records if you file your tax return before the form is corrected.
Check Missing K-1. If you have ownership in a small business, you should receive a K-1 summarizing your share of profits or losses. If the business entity is an LLC, you may have not yet received your necessary K-1. If this happens a tax extension may be necessary.
Check Conflicting Dependents. If an ex-spouse or other individual used one of your dependents in error, you may wish to have the error corrected prior to filing your tax return.
Check Self-employed Retirement Contributions. If you are self-employed you have until you file your tax return (including extensions) to fund your retirement account. This tax provision applies to SEP IRAs, solo 401(k)s, and SIMPLE accounts. By filing an extension, self-employed individuals give themselves up to six more months to fund a retirement account. This provision does not apply to Traditional or Roth IRAs.
Check Recharacterizing Roth IRA Conversions. If you transfer funds from a Traditional IRA to a Roth IRA, tax is due based on the fair market value of the assets at time of transfer. If, after transferring the funds, the value of the investment goes down, you may be required to pay tax on an over-inflated value. By delaying the filing of your tax return, you can buy time to convert the funds back to the original retirement account and avoid paying taxes on the higher value.

Extensions Are a Last Resort

Warning Start the audit clock. It is usually best to file your taxes by the April 15th due date. By doing so, it starts the Federal audit clock. Remember the window to audit your federal tax return is generally the later of three years after the due date OR when you actually file your tax return.
Warning Pay your tax. If you decide an extension is the right course of action for you, the form must be filed on or before April 15th for an automatic six-month extension. While this extension does not delay the requirement to pay the taxes owed on or before the April 15th deadline, it does eliminate a possible late filing penalty.