Bottom Line
Tax Tips
One size does not fit all - filing options

Howard Abrams
PBS Tax & Bookkeeping

 

Tax returns are not due until April 17 this year, thanks to the fact that the traditional April 15 due date falls on a Saturday.

Those two extra days give some taxpayers a false sense of security and they procrastinate a bit too long. Others realize too late that it wouldn't matter if the due date was in July - they still wouldn't have all the cash they need on hand to pay Uncle Sam.

Relax. You have options, and they don't involve leaving the country or using an alias.

Get an extension
If your tax return is not going to be done by April 17, you may choose to file an "Application for Automatic Extension of Time," also known as Form 4868. An extension means that you are extending the filing of your income tax return until Oct. 16, 2006.

By filing the extension application, you will eliminate a late filing penalty. However, it is not an extension of time to pay any taxes due.

If you think you are going to owe money on your 2005 return, it is a good idea to get it paid by April 17 so you can eliminate a late payment penalty. You will have to estimate the amount of tax due if you are filing for an extension.

If you're in a refund situation and you file an extension, there will not be any underpayment penalties. A reasonable estimate of tax liability must be entered on the Form 4868. The extension application is valid even if the estimated balance due is not paid.

Can't pay what you owe?
File the return on time or file for an extension to avoid a late filing penalty of 5 percent up to 25 percent per month. If you think you can make the payment within a few months of filing, pay as much as possible with the return or extension. Mail the balance when you receive the IRS notice of tax due.

Paying by credit card is another option, however, a percentage of the tax due is charged as a convenience fee plus interest at the credit card rate. This can be costly.

Lastly, you can request an installment agreement. If you file your income tax return on time and don't owe more than $10,000, you can get a guaranteed installment agreement by filing Form 9465, "Installment Agreement Request." The tax must be paid in three years.

The IRS will usually accept installment agreements on Form 9465 from taxpayers if the unpaid liability is $25,000 or less and the tax will be paid within five years. There is, however, no guarantee of acceptance of an installment agreement with tax liabilities above $10,000.

Any taxpayer who has an installment agreement for a prior year cannot file Form 9465. They will have to negotiate with the IRS.

Haven't filed in years?
Not filing your income tax return can get you into serious trouble. If you don't file for one year, the odds are you are going to be afraid to file for the next year. And suddenly - you haven't filed for three, four, or five years because you are afraid to contact the IRS.

But because the IRS is more interested in getting delinquent taxpayers back in the habit of filing and making up for the past filings, non-filers do not have to worry about going to jail. As long as you cooperate and file the tax returns, the IRS is not going to lock you up.

It is best to file the omitted returns before the IRS contacts you. The fact that you are not able to pay the back taxes should not prevent you from filing those returns.

Once the return has been filed, you may discuss with the IRS your payment options. You may find them surprisingly lenient. You should also try to get the penalties waived if you have a reasonable excuse. The interest, however, cannot be waived except in rare cases.

If the IRS comes after you before you have taken the steps to file the delinquent returns, it is still not too late to work out a solution. The IRS will accept a timetable for filing the back returns.

Estimating income taxes
April 17 is not only the due date for filing your 2005 tax return, but also the due date of your first estimated tax payment for 2006 taxes.

Many truckers who do not pay their estimated income taxes on a quarterly basis and prefer to wait until the end of the year are often surprised to find out that they have been charged penalties by the IRS.

The point here is that the IRS wants to get its money on a timely basis throughout the year and so it has set up a method of paying estimated taxes four times a year. The due dates for payments on 2006 taxes are April 17, June 15, Sept. 15, and Jan. 16, 2007.

Change of address
If you change your home or business address, notify the IRS to ensure that you receive any refunds or correspondence. While the IRS uses the U.S. Postal Service's change of address files to update taxpayer addresses, notifying the IRS directly is still a good idea.

There are several ways to do this.

  • On your tax return. You may correct the address legibly on the mailing label that comes with your tax package or write the new address in the appropriate boxes on your tax return when you file.
  • Form 8822. You may use Form 8822, Change of Address, to submit an address or name change at any time during the year.
  • Verbal notification. If an IRS employee contacts you about your account, you may verbally provide a change of address.
  • Written notification. To give written notification, write to the IRS center where you file your return and provide your new address. The addresses for the IRS centers are listed in the tax instructions. In order to process an address change, the IRS will need your full name, old and new addresses, and your Social Security number or employer identification number, and signatures. If you filed a joint return, you should provide the same information for both spouses. If you filed a joint return and have since established separate residences, you each should notify the IRS of your new addresses.

It's a good idea to notify your employer of your new address so that you can get your W-2 forms on time.

If you change your address after filing your return, don't forget to notify the post office at your old address so your mail can be forwarded.

You should also notify the IRS if you make estimated tax payments and you change your address during the year. You should mail a completed Form 8822, Change of Address, or write the IRS center where you file your return. You can continue to use your old pre-printed payment vouchers until the IRS sends you new ones. However, do not correct the address on the old voucher.

You can download Form 8822, Change of Address, from the IRS Web site at www.irs.gov or order by calling 1-800-TAX-FORM (1-800-829-3676).

Important IRS alerts
The IRS is advising taxpayers to beware of e-mails that purport to be notice of a tax refund. Identity thieves are sending the e-mails, which appear to come from the IRS at taxrefunds@irs.gov.

The e-mails tell taxpayers they can claim refunds by linking to an attached page and filling out a form that asks for personal information including Social Security and credit card numbers.

The IRS does not send out such e-mails or require special forms to obtain a refund. Taxpayers are warned not to open any attachments to such an e-mail, which could contain viruses.

If a refund is expected, the taxpayer should call the IRS at 1-800-829-1040 to inquire about its status.

IRA note
The maximum contributions have increased to $4,000 - or $4,500 for people age 50 or older. Remember, contributions must be made by April 17.

This article was written by PBS Tax & Bookkeeping Service. Contributions to this article were made by Shasta May, director of business development for PBS. If you would like further information, please call 1-800-697-5153 or visit www.pbstax.comon the Web.
Everyone's financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.

July Digital Edition