Now Is The Time to Think About Filing a Tax Deadline Extension

The deadline to file your tax return is only three weeks away (April 18 for those who still don’t know). If you have not yet filed your federal return, I highly recommend taking a minute to request an automatic 6 month extension of time to file with the IRS. Why? There’s no penalty for filing early, but there sure is a penalty for filing late. The extension is a “better safe than sorry” move that can save you a lot of cash!

5% Per Month Penalty

If you do not request an extension, and miss the filing deadline, you could be subject to up to a 5% (4.5% for late filing, and 0.5% for late payment) per month penalty on any unpaid balances. Even if you only owe a small amount, an additional 5% per month can add up quickly.

IRS Form 4868

To request your extension, you will need to file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return with the IRS before the April 18th deadline. You can chose to either file a paper form, or e-file from your computer. It is your right as a taxpayer to request an extension, just remember that it MUST be mailed by April 18. If it’s late, the IRS will not accept it.

Not an Extension of Time to Pay

When you file IRS Form 4868 you will have an additional 6 months to file your federal tax return. However, keep in mind that this is not an extension of time to pay any taxes that are due. If you are likely to owe the IRS, you should consider making an estimated payment, or you will be looking at late penalty fees and interest accruing each month your payment is late.

Electronic Payments

If you e-file your automatic extension request, you will also have the option to make an estimated payment using a credit or debit card. You can pay by phone or over the Internet. If you think you’ll owe, make your best guess and pay up.

File ASAP

Once you request your extension, don't just forget about your taxes all together. As I mentioned, the extension is not an extension of time to pay. Therefore, if you aren't making an estimated payment, and you do end up owing the IRS, then you will want to get both your return and payment in as quickly as possible to avoid nasty fees.

Start Preparing for Next Tax Season Now

The best way to make sure you won’t need to file an extension next year is to stay on top of your taxes all year round. For more information, check out this article I posted a while ago on how to avoid needing an extension to file your return.

Important Tax Deadline Approaching

The deadline for taxpayers who filed a request for an automatic extension is only a few days away (October 15th), and if you have not yet net filed your return then you should do so as soon as possible. However, Friday is also a deadline for thousands of nonprofit organizations at risk of losing their tax-exempt status.

SV Herald.com:

“The Oct. 15 deadline is particularly important this year because it’s the last chance for many small charities to comply with the law under the one-time relief program the IRS announced in July,” said IRS commissioner Doug Shulman. “And as always, it’s an important deadline for taxpayers who took an extension to file their returns.”

Don’t miss your 1040 deadline

The IRS expects to receive as many as 10 million tax returns from taxpayers who used Form 4868 to request a six-month extension to file their returns. Some taxpayers can wait until after Oct. 15 to file, including those serving in Iraq, Afghanistan or other combat zone localities and people affected by recent natural disasters.

The IRS encourages taxpayers to e-file. E-file with direct deposit results in a faster refund than by using a paper return. Electronic returns also have fewer errors than paper returns. Oct. 15 is the last day to take advantage of e-file and the Free File program.

Read more here

Taxpayers Face Oct. 15 Deadlines: Due Dates for Extension Filers, Non-Profits Approach

In their newest press release, the IRS reminded taxpayers of the upcoming October 15^th deadline for extension filers and non-profits. Taxpayers and non-profits that filed for an extension will have until then to file their late return.

“The Oct. 15 deadline is particularly important this year because it’s the last chance for many small charities to comply with the law under the one-time relief program the IRS announced in July,” said IRS Commissioner Doug Shulman. “And as always, it’s an important deadline for taxpayers who took an extension to file their returns.”

Don’t Miss Your 1040 Deadline

The IRS expects to receive as many as 10 million tax returns from taxpayers who used Form 4868 to request a six-month extension to file their returns. Some taxpayers can wait until after Oct. 15 to file, including those serving in Iraq, Afghanistan or other combat zone localities and people affected by recent natural disasters.

The IRS encourages taxpayers to e-file. E-file with direct deposit results in a faster refund than by using a paper return. Electronic returns also have fewer errors than paper returns. Oct. 15 is the last day to take advantage of e-file and the Free File program.

Continue reading at IRS.gov…

House to Vote on Tax Bill as Net Cost Drops to $60.5 Billion

From the Wall Street Journal:

The latest version of House legislation to extend tax cuts and unemployment benefits would add $60.5 billion to the deficit over the next 10 years, the Congressional Budget Office said Friday.

The House took the first step toward passing the package. On a 221-199 vote, the House approved a rule setting up two votes later Friday. The House will vote on the jobless and tax package, then vote separately on a provision to postpone scheduled cuts in Medicare payments to doctors.

The new cost estimate from CBO appeared to give Democrats the needed confidence to move ahead, after lacking the votes all week.

The estimate reflects changes House leaders made to the package including eliminating spending programs created by the 2009 stimulus bill, expanded Cobra health insurance subsidies and increased federal Medicaid payments to states.

Those and other changes shaved the net cost of the package to $60.5 billion from $140 billion earlier in the week.

The total cost of spending and tax cuts in the package is roughly $116 billion. About $56 billion of that is offset by targeted tax increases on business, including the fund manager tax rate increase and changes in the way overseas income of U.S.-based multinationals is taxed.

What to do if you Missed the Tax Deadline

The deadline for filing your 2009 taxes was last week. If you are one of the millions of Americans who missed the deadline, then you may find comfort in knowing that you are not alone. In 2008, the IRS received over 9.5 million extension requests from taxpayers who were unable to get their returns filed before the deadline. Although you may face a penalty for filing your return late, it is important that you try to get your returns completed as soon as possible.

Can I Still Request an Extension?

The IRS will deny a request for an extension that is filed after midnight on April 15. Therefore, if you have missed the deadline, you need to file your tax return as soon as possible. Keep this in mind for next year; if you know you will not be able to finish your taxes before the deadline, you should always request an extension before the April 15 deadline.

Missing the Deadline

If you completely missed the deadline and did not file a request for an extension with the IRS, you need to act quickly and get your returns filed and pay any taxes you might owe. The longer you wait, the higher the late penalties will be. The failure-to-file penalty is 5 percent of the balance due per month. If your return is more than 60 days late, the minimum penalty is the smaller of $135 or 100 percent of the tax due.

The Danger of Rushing

Although, I advise you get your return filed as quickly as possible, it is important that you do not rush through the process of preparing your return. When you rush, you are more likely to make mistakes that could result in additional penalties. Always review your math carefully before sending in your return, and make sure to include your Social Security Number on any checks you write to the IRS. You definitely do not want your payment going to pay someone else’s tax liability!

Get Professional Help

If the thought of getting your returns filed causes you anxiety, then you may want to consider having a professional prepare your return on your behalf. This can help reduce the likelihood of a mistake and a tax professional can also get your return prepared and filed quickly. However, keep in mind that many tax preparation offices have seasonal hours so you should call and make an appointment as soon as possible.

Types of Penalties

There are two main types of penalties the IRS may assess on a taxpayer who files or pays late. They are failure to pay (FTP) penalties and failure to file (FTF) penalties. Oddly enough, the taxes for failing to file on time are often higher than those for failing to pay on time, so even if you cannot afford to pay the taxes owed, you should still file your return.

The Cost of Being Late

Late penalties for filing are normally 5% of the unpaid taxes for each month they are late. If you fail to file and fail to pay, the failure to file penalty will be reduced to the failure to pay penalty, which is 0.5% of your unpaid taxes per month.

Haiti Relief Workers Qualify for Combat Zone Extension

In a new IRS press release, the IRS announced that Haiti relief workers would qualify for combat zone tax deadline extensions. Along with military personnel and designated civilians, Haiti relief workers are now being given an additional 180 days to file returns and pay any taxes due.

Deadlines for taking care of a variety of federal tax matters are automatically extended for persons serving in a combat zone or a contingency operation. Operation Unified Response is a contingency operation, thus giving designated persons providing earthquake relief in Haiti the same extensions that are available to military and support personnel serving in Iraq, Afghanistan, and other combat zone localities.

This relief applies to members of the military, Red Cross personnel, accredited correspondents, and civilian support personnel acting under the direction of the Armed Forces. In most cases, the relief also applies to spouses.

Normally, eligible taxpayers have at least 180 days after they leave the combat zone or contingency operation area to take care of various tax-related matters. For Operation Unified Response and the Haiti earthquake, these tax-related matters include:

• Filing a 2009 federal income tax return,
• Paying tax due for 2009,
• Making a 2009 IRA contribution, and
• Making a quarterly estimated tax payment for 2010

Check out the full release at IRS.gov….

Business Owners Look to Extend Tax Time

All Americans know that filing a tax return is important, but for many business owners it is even more important to keep their business thriving. Therefore, some business owners like Sabina Gault of Los Angeles have decided to request a tax deadline extension in order to focus on operating her business. The Wall Street Journal wrote a great piece on some great reasons to file an extension, and the precautions to take when doing so. I have included a segment of their helpful article below.

At Sabina Gault's Los Angeles communications firm, Konnect PR Corp., the business day never ends. Ms. Gault and her staff of four regularly work nights, weekends—anytime—promoting the firm's 13 clients. With her mind so occupied, filing taxes for her company gets pushed to the end of her to-do list.

"Payroll and insurance and all of the legal bills—those go out every month," Ms. Galut says. "But with taxes…the next thing you know, it's April 10."

Recognizing she'd have to tackle a significant amount of paperwork before she could send Konnect's tax documents to her accountant, Ms. Gault decided to file for an extension. "We need to go through all expenses and it will take two or three weeks to get that together," Ms. Gault explains. The extension, which took less than two hours to file, will give Ms. Gault an additional six months.

Filing for an extension is a common way for business owners to buy some time during tax season. While extensions do not defer payment to a later date, they permit business owners to estimate what they owe and pay based on that estimate. Then, they can use the additional time to gather and organize all necessary paperwork for their actual tax return, which they file along with a check for the remainder of what they still owe—if their bill is more than they estimated.

Small business owners can receive an extension by filing IRS form 4868 for sole proprietorships or form 7004 for C-Corps, S-Corps and partnerships. These forms grant an automatic six-month extension for all entities except partnerships and corporations, which are granted a five-month extension.

Continue reading at WJS.com…

House Passes Tax Extenders Bill

From ABC.com:

The House passed a bill Wednesday that would extend for one year more than $31 billion in tax breaks. Among the 45 deductions and credits for businesses and individuals, which are set to expire at year's end:

A sales tax deduction that mainly benefits people who live in the nine states without a state income tax. The states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington and Wyoming. Cost: $1.8 billion.

An additional standard deduction for state and local property taxes for taxpayers who don't itemize their deductions. Cost: $1.5 billion.

A deduction of up to $4,000 for college tuition and related expenses. Cost: $1.5 billion.

A deduction of up to $250 for teachers who spend their own money for books and other classroom supplies. Cost: $228 million.

A credit that helps businesses finance research and development. Cost: $7 billion.

Accelerated depreciation for improvements made to leased restaurant and retail property. Cost: $5.4 billion.

Additional depreciation allowance for businesses that suffer damage from a federally-declared disaster. Cost: $1.4 billion.

Latest Good Reads

CBO Reports and the Home Buyers Tax Credit

Is Your Business Ready For The Recovery?

First Check the Tax Facts

I Hate Extensions!

White House Denies It Has Backed Off From Business Tax Increases

Will the Homebuyers Tax Credit be Extended

Just last week I posted an entry to my blog with last minute tips for people hoping to take advantage of the expiring first time homebuyers credit. However, as the deadline to claim the credit gets closer and closer, more experts are predicting that Congress will pass some type of incentive extension within the next few weeks. In fact, there are reportedly over 5 bills currently being considered by the Senate and House of Representatives.

Effect of Current Credit

Although it is difficult to measure the exact effect of the current credit, many people assert that it contributed to the leveling off of the recent housing market crash. According to the IRS, over 1.4 million American families have taken advantage of the credit so far. Another 400,000 are expected to by the end of the year. This total represents a sales increase of around 10% from last year.

While this does represent a decent increase, it is not clear if the increase was because of the credit or not. Mike Larson of Weiss Research claims that low prices and reasonable rates of 30-year fixed mortgages have made more of an impact than the Federal government’s tax credit. He refers to it as “the icing on the cake, not the cake itself. Falling home prices have worked their magic. That's why we are where we are."

Multiple Bills being Considered

As I mentioned before, there are already nearly half a dozen bills being considered by Congress. The most popular bill simply extends the current credit’s deadline from November 30^th, 2009 to May 30^th, 2010. However, there are other variations that would expand the credit even further. One seeks to raise the value of the credit from $8,000 to $15,000 while others would change the credit so that all homebuyers, as opposed to just those who have not purchased a house within the past three years, can take advantage of it.

Economy Still in Trouble

The main reason that supporters want to extend the bill is simple: the economy is still in trouble. Without a tax incentive, U.S. home sales will drop in 2010. Specifically, many are worried that sales during the winter months (when real estate activity is typically low) will plummet and put our economy back into trouble. Senator Isakson from Georgia, who actually worked in real estate before running for office claims “December through February is historically the worst time for home sales anyway because of the winter months, so with the credit ending November 30, you have a double whammy.”

Popular Credit

In all honestly, one of the largest reasons Congress is considering extending the credit is because of its mass popularity. Politicians are always thinking about their next reelection, and supporting legislation that is popular among your constituents is a great way to get reelected. Average taxpayers are always claiming that Congress does not do enough for “main street Americans” extending or expanding the current credit would be a great way to please them.

Opposition to Extension

There is quite a bit of opposition to extending the credit. First and foremost, there is concern over its costs. The first credit was passed in a state of economic emergency. Americans were frightened that the banking system would collapse, and that the housing marketing would crash entirely. Therefore, Congress was able to get the credit created without much debate about the costs. However, when you look at the math, this credit has already been very expensive. If 1.4 million families have already taken advantage of the credit, and 400,000 more will before it expires, then we are looking at a total cost of nearly $15 billion. Additionally, experts are worried that excessive credits will be the first step in creating the next real estate bubble.

Heavy Industry Pressure

Another thing to consider when examining the housing credit is the amount of pressure real estate and construction lobbyists have put on Congress. The National Association of Home Builders, The National Association of Realtors, and even the Business Roundtable (an association of chief executives) have all published statements promoting an extension of the credit. They are also pushing for lower interest rates, and an extension of the limits on loans eligible for government backing or purchase

Likelihood of Extension

With all of this debate about whether the credit has worked or not, what exactly are the odds that the credit will be extending? Lisa Poole of Time Magazine says there is a 2 to 1 chance that it will be either extended or expanding, but I would say that the odds are probably better than that. I doubt that it will be increased to $15,000, but I am pretty confident we will see some type of extension on the $8,000 credit for first time homebuyers.

Questions for the Tax Lady: September 21st, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: If I sell my house at a loss, can I deduct that amount on my income tax return?

No, you cannot deduct the loss of funds from the sale of a personal residence. However, if the home was an investment property, and not your principal place of residence, then you may be able to deduct a capital loss. However, I recommend you have a tax professional review your finances before taking such a deduction.

Question #2: I ran out of time to trade in my car before the Cash for Clunkers program expired. Do you know it will ever come back?

Although many people have praised the Cash for Clunkers program, it does not look like it will get another extension. The program was successful in increasing auto sales, and provided a decent economic boost, but there has been no serious mention of bringing it back. However, there are other similar programs such as “dollars-for-dishwashers,” that are likely to begin in the next few weeks.

Missed the Tax Deadline? File Anyway

So, April 15 came and went and you didn’t file your taxes? Didn’t even get your extension filed in time? Well, I hate to be the bearer of bad news, but odds are you will be penalized when you finally do file.

If you didn’t file your taxes, it’s probably because you owe and can’t afford to pay, yet. If you were expecting a refund, you probably got your taxes filed on time, right? But I would caution you to file now, even if you can’t fully pay. Why?

Because you are shooting yourself in the foot! The IRS assesses interest on any unpaid taxes, and when you don’t file, they add on a failure-to-file penalty. The failure-to-file penalty adds 5% of your total tax bill per month! Every month you put off filing means more money you’ll end up owing. Even if you don’t have the money to fully pay your taxes, by filing now you can avoid any further failure to-file-penalties.

Thinking you’ll just file an extension? Think again. The IRS automatically denies any extension requests filed after midnight on April 15. Don’t even waste your time and postage.

So, file your taxes and pay the bill. Need help preparing your taxes—look up a Roni Deutch Tax Center. If you cannot pay the bill, you might want to look into establishing an Installment Agreement or Currently Not Collectible status. If you need help, give my firm a call.

Next year, make getting your taxes filed on time a priority.

How to Avoid an Extension in 2010

Wednesday was the tax deadline and thousands were scrambling to request an automatic extension from the IRS. Although you will not be penalized for filing a tax extension – as long as you pay all required tax liabilities – it is a good idea to get in the habit of getting your return prepared and filed before April 15^th. By planning ahead, there are plenty of easy things you can do now to prevent the need for a tax extension in 2010.

1. Organize your documents

By keeping your tax documents in one place throughout the year you will always be one step ahead of the game. As you get closer to next tax season, begin to review your financial documents and make sure you have everything you will need to do the actual filing. You could even make yourself self a tax checklist, to make sure you do not forget anything.

2. Start early

Start the compilation, organization, and calculation process as soon as you can. All tax forms are available on the IRS’ website year-round, so it’s never too early to begin. In addition, you should start receiving all income and expense statements from third-party reporters (e.g. employer, bank, investments, etc.) by mid January. The sooner you start, the more you can spread out the task, making it easier to do. Depending on how complicated your return is, you could do a little bit every week leading up to the deadline.

3. Make estimated payments

If you are self-employed, or a small business owner, then you need to make quarterly or monthly estimated tax payments. Never evade these necessary taxes, as the penalties will be far worse come tax season—especially if you did not pay enough during the year. If you make enough through your self-employment, then you might want to consider having a professional help calculate your quarterly payments to make sure you are always ahead of the game.

4. Have Internet available

Having a computer with Internet capability will also help immensely during tax season, because you can use it to easily research tax information. You may be surprised how much information about taxes there actually is online these days. Instead of calling up your accountant or tax preparer every time you have a question, try doing a Google search to see if you can find the answer online. Or visit my company’s blogs at www.ronideutch.com/blog and www.rdtc.com/blog.

5. Determine if you will need help

Never be too shy to enlist a little professional help if you are not fully about preparing your tax returns by yourself, or simple do not have the time to do so. Determining early on whether or not you plan to hire help will allow you to take your time choosing the right tax prep specialist or accountant for you. You may also be able to get a better deal, as many tax preparation offices run specials early during tax season.

6. Change your withholdings

If your payroll withholdings are off, then it can make things more difficult when you go to prepare your returns. Moreover, there is nothing worse then being surprised to learn you owe the IRS a huge tax payment come April 15. If you have been over or underwithholding throughout the year, by adjusting your withholdings now, you can make things easier for yourself come next tax season.

7. Find more deductions, make adjustments

Many people put off filing their taxes because they are scared of paying up any money they might owe the IRS. To offset what may be a big payment, take the time now to carefully research the current tax laws to see what deductions you qualify for. If you have already claimed all available credits and deductions, then see if there are any small adjustments you can make in your life to claim some that you may not have qualified for this year.

8. E-file

A lot of people simply do not want to drive to a tax preparation office to file their returns. If you prefer to do things from home, you could try e-filing this year, or look into over-the-phone services. If you have all your info together, both options are quick, easy, and can prevent you from needing to file an extension.

IRS Urges Taxpayers To e-file Extension Requests by April 15 Filing Deadline

The IRS recently posted a new press release, urging taxpayers to file extensions before the filing deadline.

Taxpayers who need more time to complete their returns should submit their requests for an automatic extension electronically by April 15, the Internal Revenue Service urged today.

This year, anyone, regardless of income, can e-file their extensions at no cost from a home computer using IRS traditional FreeFile or FreeFile Fillable Forms. E-filing a request for an extension using either form of FreeFile is convenient, safe and secure, and taxpayers receive confirmation to keep with their records.

The IRS expects to receive 1.9 million extension requests electronically this year. A total of almost 10 million extension requests are expected during 2009 compared with 9.5 million extensions received during 2008.

The extension gives taxpayers until Oct. 15 to file the tax return. An extension does not give the taxpayer an extension of time to pay. Those who owe taxes can make a payment when they file the extension either by mailing a check or by several electronic payment methods, such as electronic funds withdrawals from bank accounts and credit card payments.

Taxpayers can get an automatic six-month extension of time to file their tax returns by filing Form 4868, Automatic Extension of Time to File.

Taxpayers can e-file the extension from a home computer or through a tax professional who uses e-file.