taxes

My last article focused on tax savings tips, unfortunately, I haven’t even started on my 2009 tax return.  Needless to say, I’ll be filing for an extension instead of rushing to finish and file my 2009 tax return by April 15^th.

If you’re in a similar situation, you may want to file a Form 4868, Application for Automatic Extension for Time to File U.S. Individual Income Tax Returns.  Particularly if you need more time to do a thorough job preparing your tax return.  This has affected a lot of tax filers this year who have had to deal with many of the new tax issues/changes that took effect in 2009.

Another reason to file an extension is that many financial institutions are still sending corrected form 1099s with revised amounts for qualified dividends and foreign taxes. Taxpayers with investment income may want to file an extension if they typically receive a corrected form 1099.

Filing an extension is pretty easy to do and gives you a huge advantage – an additional six months (until October 15^th, 2010) to file your final 2009 tax return.  Not to mention it will save you time and money later.  This is because you will owe the IRS penalties and interest if you don’t file a tax return or at least an extension by April 15th.

One commonly overlooked and costly mistake faced by many who may consider filing or do file an extension – the need to file an extension for your state tax return as well.  This is an easily avoided, yet costly error, so don’t do it.

Even though filing an extension gives you an additional six months to finalize your taxes, it does NOT give you an extension to pay the taxes you owe. If you think that you may owe taxes, then you will still need to calculate a reasonable estimate of the taxes owed and submit a payment with your Form 4868.

Be sure to pay at least 90 percent of what you think you owe to avoid any late payment penalties.  Additionally, if you want to avoid paying any additional interest for paying late, you have to pay the full amount of the tax liability owed.  (NOTE: Currently the IRS interest rate for late payments is 4 percent, so maybe it isn’t a big deal, but I hate having to pay one cent more than I need to.)  This is one area where it pays to error on the side of caution – READ AS “it is better to overpay versus underpay” to avoid a hefty penalty.

Lastly, don’t worry — according to the IRS, filing for an extension does not make your return any more likely to be the target of an IRS audit.

As always, I recommend that you work with a “Financial Professional”, in this case a CPA or tax professional.  Specifically a CPA or tax professional that understands the business of taxes and finances and can provide trusted advice and services during the tax season and throughout the year to come.

Finally, don’t feel bad about trying to save money on your taxes – don’t cheat, but definitely do everything legally in your power to avoid them.  As a little motivation, a quote from Judge Learned Hand – “Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”

Good Luck!

TheProAdvisor

Tagged as: Capital Gains Tax, Filing Extension, Income, interest, Retirment, tax credit, Tax Credits, Tax Deadline, Tax Extension, Tax Filing, Tax Savings, Tax Tips, taxes

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