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Need More Time to File Your Tax Return? Here Is How To File For An Extension

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For many people, meeting the IRS’s April 18th tax return deadline for filing and paying the 2010 taxes will prove impossible. Unfortunately, the IRS did not automatically extend the deadline because of the tax filing delay!

Fortunately, the IRS allows taxpayers to file for an extension of the deadline to October 17th. The process for requesting an extension is fairly easy, however, there are a few things that you must consider regarding this option.

What Happens When You File For An Extension?

Filing for an extension gives you an additional six months to submit your tax return. For tax year 2010, that means that your tax filing deadline would be extended from April 18, 2011 to October 17, 2011.

An extension allows you to submit your tax return after April 18th, but it does not extend the amount of time you have to make a payment. This means that you will owe interest on any amount not paid by the original April 18th deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date. In order to avoid all interest and penalties, you must pay the full amount due by April 18th.

How To File For An Extension On Your Tax Return

In order to request an extension, you must file Form 4868 (PDF) with the IRS before April 18th. You can electronically submit Form 4868 through IRS Free File. Using this service to prepare and electronically submit Form 4868 is free to everyone, regardless of income.

Actually, since I offer professional tax preparation services, I can also electronically submit Form 4868 for you – just use the contact form on the linked page.

What If You Can’t Pay Your Taxes By The Deadline?

Since extending your filing deadline doesn’t push back the deadline for payment, what can you do if you can’t pay the full balance by April 18th? Here is what the IRS recommends:

If your return is completed but you are unable to pay the full amount of tax due, do not request to extend your filing deadline. Submit your tax return on time and pay as much as you can. The IRS will send you a bill or notice for the balance due. To apply online for a payment agreement, go to IRS.gov and click “Online Payment Agreement Application” at the left side of the home page under Online Services. If you are unable to make payments, call the IRS at 800-829-1040 to discuss your options.

If I Still Have To Pay By April 18th, What Is The Benefit Of Filing For An Extension?

By filing to extend your deadline, you are able to avoid the failure-to-file penalty. This penalty is usually larger than the failure-to-pay penalty, so by filing to extend your deadline, you are able to avoid paying the larger penalty.

Also, if you are able to pay at least 90% of your tax liability (remember that for a large amount of taxpayers, your withholdings may cover this amount already) by April 18th, and request to extend the deadline, you will be able to avoid paying penalties, as the IRS explains:

  • The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.
  • You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
  • If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty if  you file by the extended due date and pay the remaining balance with your return.
  • You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

So the bottom line is that if you have already completed your return and you know that you can’t pay the entire balance, it is better to just submit your tax return, pay what you can, and set up a payment plan with the IRS.

You should only request to extend your deadline if you are unable to complete your tax return by April 18th!

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Owe the IRS Money? Here are a Few Things That You Need to Know

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Now that you have completed your tax return, you realize that you owe the IRS more money! This can be a very frustrating and intimidating experience. There are many questions that come up: What are your options? Can you send a check or cash? Can you pay by credit card – and is this a good idea? If you can’t pay, should you file for an extension? Can you make monthly payments?

Hopefully, after reading this you will understand all of the pros and cons, and also know what your best option will be.

First let’s consider the various penalties that can be assessed by the IRS:

Failure to File: As the name implies, this is the penalty for filing your return after the April 15 deadline. It is usually 5% of the unpaid taxes for each month or part of a month that a return is late, up to 25%!

Failure to Pay: If your tax bill isn’t paid in full by April 15, you will have to pay a failure-to-pay penalty of ½ of 1% of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can also be as much as 25% of your unpaid taxes!

Interest: Currently the interest rate for unpaid taxes is 4% compounded daily! Generally, interest is charged on any unpaid tax from the due date of the return until the date of payment.

So, as you can see, it is in your best interest (no pun intended) to pay your taxes in full by April 15th; and if you can’t, there are ways to reduce your interest and penalties.

Let’s look at a few scenarios and see what your options are:

I owe the IRS money, and I CAN afford to pay it by April 15th.

Since you have already prepared your tax return and you can afford to pay by the due date, your only concern is securely sending Uncle Sam your money. Here are a few tips provided directly by the IRS:

  • Never send cash!
  • If you file electronically, you can file and pay in a single step by authorizing an electronic funds withdrawal via tax preparation software or a tax professional.
  • Whether you file a paper return or electronically, you can pay by phone or online using a credit or debit card.
  • Electronic payment options provide an alternative to paying taxes or user fees by check or money order. You can make payments 24 hours a day, seven days a week. Visit IRS.gov and search e-pay, or refer to Publication 3611, e-File Electronic Payments for more details.
  • If you itemize, you may be able to deduct the convenience fee charged for paying individual income taxes with a credit or debit card as a miscellaneous itemized deduction on Form 1040, Schedule A, Itemized Deductions. The deduction is subject to the 2 percent limit.
  • Enclose your payment with your return but do not staple it to the form.
  • If you pay by check or money order, make sure it is payable to the “United States Treasury.”
  • Always provide your correct name, address, Social Security number listed first on the tax form, daytime telephone number, tax year and form number on the front of your check or money order.
  • Complete and include Form 1040-V, Payment Voucher, when sending your payment to the IRS. This will help the IRS process your payment accurately and efficiently.


    I owe the IRS money, I CAN’T afford to pay it by April 15th, but I can pay within 120 days.

    If you fall into this second category, then requesting additional time to pay from the IRS (this can be from 30 days to 120 days) may be your best option. The IRS usually approves these 120-day extensions, but they reserve the right to deny your request if they feel as though you cannot pay the full amount within 120 days.

    To apply you can use the Online Payment Agreement and, when approved, you should receive written confirmation from the IRS within 10 days.

    By using this option, you can avoid the Failure to File penalty – the 5% per month discussed above.

    I owe the IRS money, I CAN’T afford to pay it by April 15th, and I CAN’T pay it in full within 120 days.

    If this is you, the prospect of interest and penalties being heaped on top of your tax burden must seem daunting. However, you have a couple of options to reduce the sting:

    Installment Agreement: If your taxes, interest and penalties total less than $25,000 then you can use the Online Payment Agreement (OPA) and be automatically and immediately approved for an installment plan. If you owe more than $25,000 you must complete Form 9465 (PDF) as well as Form 433-F (PDF).

    The fee for using this option is $105 ($52 if you make the payments by electronic funds withdrawal). You will still be responsible for paying interest on any outstanding amount while under the installment agreement. Also, you may be charged with the Failure to Pay penalty – depending on how much you were able to pay on of before April 15.

    Pay by Credit Card: The IRS allows you to charge your taxes on your American Express, MasterCard, Visa or Discover credit cards. Also, they will accept your  payment on your debit card, as long as it is branded as a Visa Consumer Debit Card, or a NYCE, Pulse or Star Debit Card.

    Visit this link for a list of IRS approved service providers, in order to make a payment by credit or debit card. If you are paying by credit card, the service providers charge a convenience fee based on the amount you are paying. If you are paying by debit card, the service providers charge a flat fee of $3.89 to $3.95.

    You will have to do some basic math to figure out if the interest, penalties and the fee for the installment agreement is more or less than the interest and convenience fee from using your credit card to pay your taxes. This will be heavily dependent on the amount of time you will need in order to pay your outstanding tax bill in full.

    No matter which option you choose, it is clear that you should make sure to file your tax return (or request an extension) by April 15 in order to avoid the Failure to File penalty. Also, be sure to pay as much of your tax debt as possible by this date. It may pay to max out your card and pay the balance by using one of the other options listed above.

    If you need to file for an extension, click here for more information.

    To schedule your appointment with KNS Financial for tax preparation, please send an email to taxes@knsfinancial.com or use our contact form located here: http://knsfinancial.com/contact-us/

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    Common Errors To Avoid At Tax Time

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    Many taxpayers experience a delay in the processing of their tax return due to simple, common errors that can be avoided with a little double checking.

    According to the IRS, here are nine of the most common errors that can unnecessarily delay your tax return:

    1. Incorrect or missing Social Security Numbers – When entering SSNs for anyone listed on your tax return, be sure to enter them exactly as they appear on the Social Security cards.
    2. Incorrect or misspelling of dependent’s last name – When entering a dependent’s last name on your tax return, ensure they are entered exactly as they appear on their Social Security card.
    3. Filing status errors – Make sure you choose the correct filing status for your situation. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er) With Dependent Child. See Publication 501, Exemptions, Standard Deduction, and Filing Information to determine the filing status that best fits your needs.
    4. Math errors – When preparing paper returns, review all math for accuracy. Remember, when you file electronically, the software takes care of the math for you!
    5. Computation errors – Take your time. Many taxpayers make mistakes when figuring their taxable income, withholding and estimated tax payments, Earned Income Tax Credit, Standard Deduction for age 65 or over or blind, the taxable amount of Social Security benefits, and the Child and Dependent Care Credit.
    6. Incorrect bank account numbers for Direct Deposit – If you are due a refund and requested direct deposit, be sure to review the routing and account numbers for your financial institution.
    7. Forgetting to sign and date the return – An unsigned tax return is like an unsigned check – it is invalid.
    8. Incorrect Adjusted Gross Income information – Taxpayers filing electronically must sign the return electronically using a Personal Identification Number. To verify their identity, taxpayers will be prompted to enter their AGI from their originally filed 2008 federal income tax return or their prior year PIN if they used one to file electronically last year. Taxpayers should not use an AGI amount from an amended return, Form 1040X, or a math error correction made by IRS.
    9. Claiming the Making Work Pay Tax Credit – Taxpayers with earned income should claim the Making Work Pay Tax Credit by attaching a Schedule M, Making Work Pay and Government Retiree Credits to their 2009 Form 1040 or 1040 A. Taxpayers who file Form 1040-EZ will use the worksheet for Line 8 on the back of the 1040-EZ to figure their Making Work Pay Tax Credit. The credit is worth up to $400 for individuals and $800 for married couples filing jointly. Many people who worked during 2009 are slowing down the processing of their tax return by not properly claiming this credit.

    To help avoid these and other errors while completing your return, you have a number of resources. First the IRS has published this checklist. Second, we have a complete Guide to Taxes on our site at this link: http://knsfinancial.com/taxes/

    Also, please consult this article for more information regarding the Making Work Pay Tax Credit.

    To schedule your appointment with KNS Financial for tax preparation, please send an email to taxes@knsfinancial.com or use our contact form located here: http://knsfinancial.com/contact-us/

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    Many New Jersey Residents Will Have Until May 11th to File Their Tax Return

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    According to the IRS, many of the victims of the severe storms, flooding, mudslides and landslides that began on March 12 in New Jersey will qualify for tax relief.

    According to the IRS press release, “The President has declared Atlantic, Bergen, Cape May, Essex, Gloucester, Mercer, Middlesex, Monmouth, Morris, Passaic, Somerset, and Union counties federal disaster areas qualifying for individual assistance.”

    For taxpayers who have a residence or a business in one of the counties listed above, the IRS has extended the deadline for filing your 2009 individual income tax returns, making tax payments and making contributions to an IRA (for tax year 2009) from April 15th to May 11, 2010.

    For all employment and excise deposits due on or after March 12 and on or before March 29 the IRS will waive the failure to deposit penalties, as long as the deposits were made by March 29.
    Additionally, the IRS has also announced the following:
    If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the Postponement Period.
    IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.

    For a look at the original press release, click here.

    To schedule your appointment with KNS Financial for tax preparation, please send an email to taxes@knsfinancial.com or use our contact form located here: http://knsfinancial.com/contact-us/

    For more information on taxes click here.

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    Use Your Tax Refund to Open a Savings Bond

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    In addition to having your tax return directly deposited into your bank account, the IRS also gives you the option to purchase US Savings Bonds (up to $5,000).

    Here are a few things they want you to know regarding this option:

    1. You may use a portion of your refund to purchase up to $5,000 in U.S. Series I Savings Bonds.
    2. The total amount of saving bonds purchased must be a multiple of $50. Additional money over the specified amount must be deposited into another financial account – such as a checking or savings account.
    3. The bonds will be issued in your name. For married taxpayers filing a joint return, the bonds will be issued in the names of both spouses.
    4. You will receive the U.S. savings bonds in the mail.
    5. You normally select this option by filing Form 8888, Direct Deposit of Refund to More Than One Account.

    Form 8888 has step-by-step instructions on how to select this option and how to specify the amount of your refund you want to use to purchase savings bonds.

    How many of you will use this option when claiming your refund this year? If not, what do you plan on doing with the money? If you are struggling financially, you can also use your refund as a huge budget helper! Leave a comment below!