Tax Day 2015 Has Arrived!

Free food is great and all, but is that really what you want on Tax Day?  I suppose if you’ve already filed and you’re just waiting for a refund check, then you may have an appetite for a free Hard Rock Cafe burger, a Schlotzksky’s sandwich, or red velvet cake at Tony Roma’s.  But if you’re like many other taxpayers, you have had to work for every dime you earn and you maybe haven’t had time to get your taxes done yet.  Of course, it is also difficult to be motivated to file when you know you’re going to owe.  It you fit this description, then maybe you’re looking for a more valuable bit of Tax Day info, like how to file an extension.

Keep in mind that the automatic extension is “automatic” because it is granted to anyone who asks without the need to show reasonable cause, not because it happens automatically.  You have to so something.  You have to ask for it**.  The IRS website is extremely sluggish right now due to all the extra traffic it gets this time of year, but requesting an extension online using Form 4868 is still the fastest and most convenient way to do it.

You can file it with your electronic payment, through your tax filing software, or through your tax professional.  You’ll need your name, address, and social security number.  You will also be asked to estimate your 2014 tax liability, provide the amount you have paid towards that liability (if any), the amount you are sending in with the form (if any), and lastly, the total remaining liability.

So, what do you get when you file an extension?  How is six extra months?  Congratulations, you may take a deep breath and relax a little because you don’t have to file until October 15th now.  But, there is one big “BUT” associated with filing an automatic extension: an extension to file does not also give you an extension to pay.  If you don’t pay on time then you’ll be charged interest and late payment penalties.

**You don’t even have to request an extension if you are a US citizen living abroad, or if you are serving in the military outside the US.

It’s Tax Day in Canada

Today is “Tax Day” in Canada, sort of.  The income tax filing deadline in Canada is usually April 30th.  They get a couple weeks more than we get here in the United States. Self-employed taxpayers have until June 16th to file, although they must pay any tax due by April 30th or else they are hit with penalties and interest on their tax debt.

This year, however, Canadians have until May 5th to file their income taxes.  There was a 5-day service interruption earlier this month caused by the Heartbleed bug, so authorities have granted taxpayers a corresponding 5-day deadline extension.

The Canada Revenue Agency (CRA) strongly encourages taxpayers to file electronically, but there are still the 17% of paper-filing holdouts.  Similar to US rules, Canadians must have their tax returns postmarked by April 30th (or May 5th this year) in order for the return to be considered timely.  And just like in the United States, a Canadian tax return does not need to be mailed with any special insurance, tracking, or certification.  It doesn’t have to be shipped via any special priority method either.  A simple first class postage (or equivalent) will suffice.  But paper filing creates unique problems (at least anecdotally) in Canada where the state-run postal service is not considered to be very trustworthy.

Check out these complaints that were undoubtedly written by grumpy Canadians on the eve of their tax filing deadline who are beginning to formulate excuses for filing late:

Assuming Canada Post even picks up mail from the mail boxes. Even so, I think majority of the post simply ends up collecting dust somewhere or even into the shredders.                                     ~ CKHY

I received NO MAIL in the last 9 days. No junk mail, no bills I am waiting for. I never receive mail on a Monday or Friday. How can we trust Post Canada to send tax returns ?                     ~ Bob_The_Bear

IRS Offers Disaster Relief in Illinois

Today the IRS announced that it will be offering tax relief to victims of severe storms in parts of Illinois.  The destructive weather that began on November 17, 2013 has resulted in the government making disaster declarations in the following counties: Champaign, Douglas, Fayette, Grundy, Jasper, La Salle, Massac, Pope, Tazewell, Vermilion, Wabash, Washington, Wayne, Will and Woodford.

If you live in any of these counties then you will automatically be given extra time to file and pay certain taxes.  Deadlines falling anytime between November 17, 2013 and February 28, 2014 will be extended to February 28, 2014.  If you have been affected by these storms (either personally or indirectly, such as by having a tax preparer in one of these counties) but you do not reside or do business in the affected area, then you may still obtain tax relief by calling the IRS and explaining your individual circumstances.  The IRS disaster hotline is (866) 562-5227.

Maybe this Thanksgiving we should remember to be thankful for great weather, especially here in California.

Tax Deadline Tomorrow! Are You Prepared?

There’s a tax deadline tomorrow causing many people to work on their taxes into the wee hours tonight. Even though the federal government is closed, the second tax day is tomorrow, October 15, 2013. This second tax day is the deadline to file your personal federal tax return with the Internal Revenue Service (IRS) if you filed an extension to file your taxes by April 15, 2013, the first tax day.

On September 26, 2013, the IRS announced that “many of the more than 12 million taxpayers who requested an automatic six-month extension this year have yet to file.” These are likely the people that are going to be up late tonight enjoying tax returns instead of playoff baseball and Monday night football. Individuals and their tax preparers alike are guilty of procrastinating until this upcoming second tax day to prepare and file their tax returns.

Many people file a tax extension in April once they prepare their tax return and determine that they’re going to owe a tax liability. Others just need additional time to review their finances and prepare their tax returns. In either case, filing a timely tax extension in April only allows taxpayers extra time to get their tax returns filed. However, an extension to file does not extend the time that taxpayers have to pay any tax due on their tax return. This is often overlooked or simply ignored by taxpayers when requesting a tax filing extension.

If you filed an extension to file but owe a balance due, you will owe interest on any amount not paid by the April 15 tax filing deadline, plus you may owe penalties. The late payment penalty is generally ½ of 1% of any tax not paid by the original filing deadline of April 15, 2013. It is charged when reasonable cause for non-payment is not established, for each month or part of a month the tax is unpaid maxing out at 25%. Fear of not being able to pay the tax due often causes individuals to not file their tax returns, even if they have an extension to file. They’re often delaying the inevitable.

The IRS promotes payment plans to the public to entice the public to file their tax returns even if they cannot immediately pay the entire tax liability. Beware however, as the IRS is a collection machine, their job is to collect the debt owed; assuming of course that they return to work.

There are different types of payments plans allowed by law that may better fit your budget than the IRS may share with you, unless you know the rules. The IRS has a hardship program called currently non collectible status for taxpayers that are unable to pay the tax debt owed. Additionally, the IRS has a debt settlement program for tax payers that can prove that it is in the government’s best interest to collect less money than what is owed, this is called an offer in compromise. The point is that there are options available for taxpayers that cannot pay their taxes owed. The first step is to file your tax return, preferably before tomorrow’s second tax day deadline.

" is not responding"

This is the error message I kept getting when I tried to navigate around the IRS website today.  I don’t know enough about computers to say for sure what is going on, but I would guess the problem is too much internet traffic from last minute filers and refund seekers.

Happy Tax Day! – April 15, 2013

The most useful bit of advice I could give today is this: if you’re not 100% prepared to file your taxes, don’t throw your forms together at the last minute.  File an extension!  Enough said.

File an extension using Form 4868.

Extension for Farmers & Fishermen

This year the IRS was not ready to begin receiving and processing 2012 tax returns when they normally do so.  In fact, they’re still not ready.  The IRS has been making last minute changes stemming from the American Taxpayer Relief Act which, by the way, has such a nifty name.  Where exactly is the tax relief in this legislation?

The IRS doesn’t appear to be ready for forms commonly filed by fishermen and farmers either.  Form 4562 and the processing systems involved need “extensive programming and testing” according to the IRS.  Another unintended consequence of the American Taxpayer Relief Act.

And the estimated tax normally required by March 1st can be paid up until April 15th without incurring a penalty this year.  It does not look like merit-based penalty relief; all you have to do is “ask.”  However, it is important for farmers and fishermen to know that this penalty relief does not come automatically.  They will need to submit a penalty waiver (Form 2210-F) with their tax return.

Sandy: Extended Tax Relief

The IRS has expanded the tax relief granted to individuals affected by hurricane Sandy.  This comes as no big surprise given the fact that the IRS had initially given a meager 7 additional days to file employment tax returns that were due on October 31st.  The IRS is now expanding relief categories and extending the deadline to February 1, 2013.  Also, the IRS has now identified specific counties that automatically qualify for relief.

Here is a new breakdown of the types of tax requirements with an extended February 1, 2013 deadline:

  1. Fourth Quarter estimated tax payments for individuals
  2. Third Quarter payroll and excise tax returns
  3. Fourth Quarter payroll and excise tax returns
  4. Form 990 series returns required of tax-exempt organizations

Tax relief is automatic for residents of 4 specified counties in Connecticut, 10 counties in New Jersey, and 9 counties in New York.  The IRS is also demonstrating compassion for people who were indirectly affected by Sandy.  So, if your tax records or your CPA were located in any of the listed counties during the storm, or if you were helping with rescue and relief efforts, you may also qualify for tax relief, but you will need to call the IRS and request it.

Isaac-related Tax Relief

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Hurricane Isaac has caused an estimated $2 billion worth of damage with at least 13,000 homes and countless other structures damaged in Louisiana alone.  The devastation was enough for the IRS to announce special tax relief for the following affected counties:

  • In Louisiana: Ascension, Jefferson, Lafourche, Livingston, Orleans, Plaquemines, St. Bernard, St. Charles, St. John the Baptist and St. Tammany parishes.
  • In Mississippi: Hancock, Harrison, Jackson and Pearl counties.

What kind of tax relief, you ask?  The IRS basically gives taxpayers and businesses in the affected areas extensions on filing and paying certain taxes that were due on or after August 26, 2012.  For example, somebody living in Jefferson Co., Louisiana who requested a filing extension for their 2011 taxes will no longer have to file by October 15th.  Instead, the new deadline will be January 11, 2013.  And this is regardless of individual circumstances; everyone in the affected counties will be allowed to postpone filing and/or payment.  The other benefit is that the IRS will abate both penalties and interest that would otherwise accrue during the period leading up to January 11th.

It’s actually FEMA that goes out and assesses the damage, and IRS designates disaster areas based on FEMA reports.  There are 14 disaster areas now, but will that list continue to grow?  It may be too early to kiss Isaac goodbye.  A remnant of Isaac is lurking in the Gulf of Mexico that experts say could regenerate into another hurricane if conditions are just right.  Apparently this is what happened with Katrina in 2005.


Clinton & Obama Clash on Tax Cuts for Wealthy

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Bill Clinton disagrees with Obama about what should be done about the tax cuts that are set to expire in January 2013. Obama’s position is that they should be renewed for people earning below $250,000.  The former president believes we should extend tax relief across the board for all Americans (at least for now) regardless of income levels:

What I think we need to do is to find some way to avoid the fiscal cliff, to avoid doing anything that would contract the economy now, and then deal with what’s necessary in the long-term debt-reduction plan as soon as they can, which presumably will be after the election.

~ Bill Clinton on CNBC’s “Closing Bell with Maria Bartiromo”

It’s hard to imagine there’s another potential “cliff” in our future, but I certainly would not doubt it.  Letting the tax cuts expire completely would be akin to running along the edge of the cliff blindfolded.



IRS Secrets

In-N-Out has its secret sauce and its secret menu.  Google has its secret search algorithms.  Well, guess what?  The IRS has its secrets too.

For example, everybody dreads the IRS audit, but nobody can tell for sure how to avoid them.  Sure, there are risk factors.  For example, high income taxpayers are more likely to be audited, self-employed’s are more likely to be audited than w-2 employees, and returns that have been amended are more likely to be closely examined than other returns.  However, IRS audit risk analysis is an imperfect science.  Even though it is very common for taxpayers to ask their tax attorney about their individual chances of being audited, tax professionals are understandably reluctant to give a straight answer . . . because they just don’t know.

Robert Wood is a prominent San Francisco tax attorney — one of the leading authorities in his field.  He writes a tax column for Forbes.  In one of his recent articles, he talks about whether or not the risk of audit increases when a taxpayer files an extension.  He thinks it does not, although he points out that other tax professionals disagree.  Interestingly, Mr. Wood does not cite any Revenue Code section, IRM section, or anything.  This is just his opinion based on his 30+ years of experience.

Even if there is a secret IRS audit formula, I’m sure it’s updated regularly to keep people on their toes.