Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 10, 1995 TAG: 9504110023
SECTION: BUSINESS PAGE: A8 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Medium
That's the advice from certified public accountants in Roanoke for the countdown hours of the tax season.
The tax filing deadline is only a week away. For most people, returns for 1994 taxes must be postmarked by next Monday, April 17.
And the 14 CPAs who for 12 weeks (ending today) have answered tax questions from our readers, remind us that it's the little things that count for anyone working at the last minute on the family tax returns.
Put the right postage on it so it won't come back, the accountants advised. If the envelope is returned to you for insufficient postage, it's almost a sure thing that it won't reach the Internal Revenue Service by the deadline. With interest on late tax payments and penalties, it will cost more than a couple of extra stamps.
Watch your math because simple addition and subtraction mistakes are among the most common errors.
Missing a K-1 form or a 1099 from a partnership or from an institution that paid you interest and dividends? Then estimate the amounts and hope you come reasonably close to the right amount. The IRS is more forgiving if you make a good-faith effort to comply.
Write down all your income because the IRS takes a dim view of failure to report, as baseball player Darrell Strawberry discovered when he neglected to 'fess up to his public appearance fees. The IRS matches reports from 1099 and K-1 forms with individual tax returns. This year the IRS will audit one in 100 returns; next year it will be two in 100. It gets easier and easier, they said, for the IRS to catch mistakes, intentional or otherwise.
The IRS can make a so-called "jeopardy assessment" of what it claims you owe. The IRS will just bill you, and it's up to the taxpayer to prove the tax agency is wrong. Congress is considering legislation that would shift the burden of proof to the IRS, but this has yet to be enacted.
If you think your taxes are going up, it's probably true because Congress keeps changing the rules. This resembles the way your local real estate taxes increase, even if the tax rate remains steady, because the property is reassessed and is presumed to be worth more.
For example, Congress reduced the deduction for business meals from 80 percent to 50 percent and that affects the taxes of every business and self-employed person who entertains.
You can file for an automatic extension if you cannot meet the April 17 deadline. The IRS doesn't even require a reason for the delay. Simply complete Form 4868, titled Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, and send it by April 17.
This will give you until Aug. 15 to find the records you need to fill out a form.
But that's not a free ride; it doesn't delay the deadline for payment of taxes. If you estimate that a payment is due, you must write a check for the full amount and attach it to Form 4868. If you underestimate the tax you owe, you will be charged interest on the unpaid amount. And if you fail to pay at least 90 percent of taxes due, a late payment penalty will also be levied.
If you can't file by Aug. 15, you can send Form 2688 by then for a further extension to Oct. 16, but this time you must provide a compelling reason such as a serious illness. If your request for the second extension is denied, you must file within 10 days of the denial or by the due date of the return, whichever is later.
The CPAs recommend that you file your tax return on time whenever possible. That's especially true if you are due a refund because you will be making the government a tax-free loan.
But the important thing is to do something by April 17. Even if you can't pay the bill, file your tax return with as much money as you can muster.
If you don't file or apply for an extension, you can expect a late-filing penalty amounting to 5 percent of the net amount of tax due for each month (or part of a month) that your return is late.
Until your return is filed, you're subject to interest, and both the late filing and late-payment penalties, which together are capped at 25 percent of the amount you owe.
To put a quick stop to the late filing penalty, which is the harsher of the two penalties, send in your tax return by the deadline even if you can't send your tax payment.
If you file your return but fail to pay your tax in full, the IRS will send you a bill for the amount you owe and assess a late-payment penalty of one-half of 1 percent a month, up to a maximum of 25 percent.
This penalty, which equals 6 percent a year, is in addition to the interest you will be charged on the unpaid balance.
If you cannot pay the taxes you owe, you may be able to enter into an agreement with the IRS to pay your tax liability in installments. Complete Form 9465, Installment Agreement Request. The IRS will notify you within 30 days whether it has approved the arrangement.
But interest and penalties will continue to accrue until you pay the balance in full. The CPAs suggested that you consider another source of financing as an alternative to skipping a payment to the IRS.
by CNB