Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, February 27, 1995 TAG: 9502280002
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: DAVE SKIDMORE Associated Press Writer
DATELINE: LENGTH: Medium
It's a relatively painless way to relieve the deadline pressure until Aug. 15. However, it won't get you out of paying your taxes on April 17 (April 15 falls on a Saturday this year). You should make your best estimate of how much you owe and include a check along with Form 4868. If you pay too much, you can put in for a refund when you file your return.
Even if you can't pay what you owe, file a return or an extension anyway and send as much as you can. The Internal Revenue Service will bill you for the balance due.
You can ask to pay in installments on Form 9465, but you'll have to pay a $43 fee. And the IRS will charge you a penalty of a half a percentage point a month plus its interest rate on underpayments, currently 9 percent. That works out to an annual interest rate of about 15 percent, so it may be cheaper to get a loan.
If you just ignore the deadline, you'll also be charged a late-filing penalty of 5 percent a month.
If you file and then discover you've made a mistake or left something out, you can file an amended return using Form 1040X.
Your chances of being audited by the IRS are about 1 in 100, and those who've had the experience know that it's best to keep those chances from increasing.
Some basic tips include making sure all Social Security numbers on your return are accurate. If they're not, you may have to wait longer for a refund.
Also, if the IRS computer finds the reports filed by employers, banks and brokers don't match your return, it will kick out a form letter asking you to pay up or explain.
If you're one of the unlucky few selected for an audit, you can expect the agency to look at your spending to see if it jibes with your income. For instance, someone with an expensive home, luxury cars, a yacht and a $20,000 income will want to have a good explanation ready.
In addition to those enduring regular audits, a super-unlucky 150,000 will be selected at random this year to be audited in excruciating detail as part of the IRS' Taxpayer Compliance Management Program. These audits, last done on 1988 returns, are primarily a research tool for the IRS. But you'll still have to pay any unpaid taxes - plus penalties - uncovered.
If you're a low-income person and either 65 or older or totally disabled, you may qualify for a special tax credit of up to $1,125.
If both you and your spouse qualify, your combined adjusted gross income must be less than $25,000 and you must have less than $7,500 non-taxable Social Security and pension income. The limits are $20,000 and $5,000 if only one spouse qualifies; $17,500 and $5,000 for single people; and $12,500 and $3,750 if you're married, don't live together and file separate returns.
You'll need to fill out Schedule 3 if you use Form 1040A or Schedule R if you use Form 1040. See Publication 524 for more information.
And though you may be tempted to express yourself, the IRS by law takes a very dim view of taxpayers who use their returns to exercise their wit or their First Amendment right to criticize the government.
If your return is signed by Mickey Mouse, for example, or shows a substantially incorrect tax or includes frivolous information not needed to calculate your tax, you could be socked with a $500 penalty.
Keep any records that support your tax return - receipts, canceled checks, etc. - for three years from the date the return was filed or for two years from the date the tax was paid, whichever is longer. Records that concern the value of your home and nondeductible contributions to your Individual Retirement Account should be kept permanently.
The IRS has a modest suggestion for cutting your tax liability for 1995: Make a contribution toward reducing the federal deficit and list it as a charitable donation next year. If this sounds like a good idea, make your check payable to the ``Bureau of the Public Debt'' and include it with your tax return. If you owe taxes, include a separate check payable to the ``Internal Revenue Service.''
Since 1982, more than 13,000 public-spirited citizens have contributed $2.3 million.
You can combine public interest with your personal interest by turning in a tax cheat. Rewards of up to $100,000 are available. Read Publication 733 and fill out Form 211.|
Some miscellaneous advice:
If you get a much bigger refund check than you're expecting, don't rush out and spend it without calling the IRS to find out if it's a mistake. But, don't hold your refund check too long. It expires in 12 months.
You must sign your return and both spouses must sign a joint return.
Using the stick-on mailing label supplied by the IRS expedites processing of your return, as does putting your forms together in the right order. Form 1040 goes on top. After that, refer to the sequence numbers in the upper right hand corner of your attachments.
by CNB