The April 15 Survival Guide

by The City Wire staff ([email protected]) 110 views 

There are the “haves” and the “have nots”; the haves, the individuals who have already filed their tax returns, and the have nots, those who haven’t filed their income tax returns.

For those who have filed their income tax returns, you need to know only one rule today – be careful around the have nots. Avoid them if you can. Many of the have nots are normally good natured and friendly people who find themselves feeling, well, let’s say, not in a party mood today.

If you are a have not, I want to help you get through this day. I’m going to tell you what actions you must do today to survive another six months until that final fateful day, Oct. 15.

First, if you haven’t already, you have to file an extension today! The IRS gives you an automatic six-month extension to file your income tax return as long as you file Form 4868 – Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

This is probably the simplest form the IRS allows you to file. A third grader can complete this form. The only information required is your name(s), address, city, state, ZIP Code, your Social Security number (and your spouse’s Social Security number if applicable), an estimate of total tax liability for 2012, your total 2012 tax payments, and the balance due.

The part of this form that stumps a third grader (and most college-educated adults) is line 4 estimate of total tax liability for 2012. If you have no earthly idea, guess! Put anything. The absolute most important thing for you to do today is to complete this form and successfully transmit it to the Internal Revenue Service. You can do this by filing a paper form by mail, using the IRS’s Free File link, or calling a CPA.

Most states, including Arkansas and Oklahoma, accept a federal extension to satisfy their extension requirements. In other words, if you filed form 4868 successfully, you have automatically extended Arkansas and Oklahoma’s income tax returns. You need do nothing else.

Here’s the kicker. Filing for an extension of time to file your income tax return is not an extension of time to pay your income tax. If you anticipate having to owe income tax for 2012, you need to stretch and pay all of what you expect to owe or at least as much as you can. By filing an extension you avoid a late filing penalty, just not the late payment penalties.

If you happen to be short of cash today and can’t pay the whole amount which you estimate will be due, here is what I would suggest. Pay your state taxes first, then the IRS.

The late payment penalties are as follows:
• Arkansas charges interest on the amount of tax due at 10% per year. In addition to interest, Arkansas charges 1% per month late pay penalty. However, if you fail to file an extension, Arkansas will charge a failure to file penalty of 5% per month. The penalties cannot exceed 35% of your tax due.

• Oklahoma charges interest at 1.25% per month plus a one-time 5% late payment penalty.

• The IRS charges interest on the amount of tax due at 3% compounded daily. In addition to interest, the IRS charges 0.5% per month late pay penalty. But the failure to file penalty, the penalty easily avoided by just completing and filing Form 4868, is 5% per month. While Arkansas limits their late pay and late filing penalties to 35%, the IRS limits these penalties to 25%.

The bottom line? It is less costly to owe the IRS than either Arkansas or Oklahoma. For every $1,000 owed in tax and not paid until Oct. 15, A taxpayer would pay interest and penalties to the IRS, Arkansas, and Oklahoma in the amounts of $35, $110, and $125, respectively.

There are great many taxpayers who fear the IRS. This fear makes many assume that filing an extension increases their chances of the IRS auditing their income tax return.

This simply isn’t true. If the IRS intends to audit your income tax return, it is not because you filed it after April 15. If you want to fear the IRS, there are more appropriate things of which to be afraid.

Survive the day!