I apologize if this article in not applicable to you.
Attention U.S. Income Taxpayers
April 15, 2010, the deadline for filing and paying your 2009 federal income taxes, is now just ONE WEEK AWAY.
If you have already filed and paid your taxes: Congratulations – you can skip down to the comment section if you like. Otherwise, if you’ve put off everything that’s tax-connected or just haven’t completed this annual task, now is the time to get busy.
There are options available to you, but you need to select one and follow it through.
In the current poor economy with tremendous government spending and rising debts & deficits, the Internal Revenue Service (IRS) will definitely be on the lookout for returns and payments due.
According to columnist Bob Shallit of the Sacramento Bee, IRS agents pursued a 4-cent tax liability ($202.35 with penalty and interest) from a Sacramento taxpayer on March 10.
It’s best not to meet with IRS agents visiting your home or workplace in a professional capacity. By taking action now, you can prevent such visits.
OPTIONS – What Can I Do?
By remembering that the Internal Revenue Code (the “tax code”) is complicated and confusing, you’ll have a clue about available options. It’s not easy, but it’s “doable.” Don’t waste time trying to second-guess the system. Just dig right in.
When you come right down to it, there are really only two options:
- Complete and file your return and pay any tax liability, or
- Obtain an “Extension to File” and pay any tax liability.
OPTION 1 – The “Nike Option”: JUST DO IT. Gather all of your tax-related info plus a copy of your tax return from last year (for comparison), and prepare this year’s return. Either that, or find a reliable tax preparation service, make an appointment, and take the work to them.
One way will cost you personal time, the other fees. A guarantee usually comes with fee-based preparation. So, if you don’t trust your math & reading skills, having someone else “do it” might be the better choice. Note: fees tend to increase toward the end of tax season; the guarantee still makes them worth it.
When completed, just mail in your prepared tax return (with any tax payment). Tax preparers normally recommend “certified, return receipt requested” service – you’ll have proof of delivery in case you need it. Of course, electronic filing of your returns (IRS e-file) is quicker and a bit more secure. (Electronic payment of tax is available as well.)
OPTION 2 – By using this option, you can get an extension of time to file your return. Normally, the payment of any tax is due on the regular due date (April 15, 2010 for calendar year taxpayers).
In some situations, however, you can get an extension of time to file AND PAY any tax due. Of course, the IRS seldom, if ever, hands out “freebies” – if you pay the tax due after the regular due date, you will be charged interest from the regular due date until the date the tax is paid. Yes, this does apply to those who have obtained an extension of time to file and pay any tax due.
There are different types of extensions available to different taxpayers. The two most common are:
- An automatic 2-month extension, and
- An automatic 6-month extension.
Automatic 2-Month Extension –
>> U.S. EXPATS LOOK HERE <<
You may qualify for this extension that provides not only a 2-month extension of time to file your return, but up to an additional 2 months to pay your tax due (with interest). To qualify for this extension, you must meet the following test:
You are a U.S. Citizen or Resident Alien, and on the regular due date of your return:
- You are living outside of the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico, or
- You are in military or naval service on duty outside the United States and Puerto Rico
Most U.S. taxpayers living and working in or retired in The Philippines qualify for this extension. Please note that those here “on extended vacation” do not qualify for this extension. If married taxpayers file a joint return, either spouse can qualify for this extension. If married taxpayers are filing separate returns, then this automatic extension applies only to the spouse who qualifies for it.
To obtain this automatic extension, a U.S. taxpayer must attach a statement to his/her tax return explaining which of the two situations listed above qualified the taxpayer for the extension.
Automatic 6-Month Extension –
This is the most common extension in use by taxpayers. If you are not able to file your return by the regular due date, you can generally obtain an automatic 6-month extension. Please note that this extension is for return filing only – payment of any tax liability is due on the regular due date.
To obtain this automatic extension, a U.S. taxpayer must file a Form 4868 either paper or via IRS e-file (electronic filing). The form must show “your properly estimated tax liability based on the information available to you.”
You may not be eligible to use the automatic 6-month extension of time to file if:
- You want the IRS to calculate your tax for you, or
- You are under a court order to file by the regular due date.
A taxpayer who employed an automatic 2-month extension and needs additional time should file Form 4868 seeking an automatic 6-month extension. In doing so, the taxpayer must count the 2-month extension period within the 6-month requested. I.e., this taxpayer would be requesting and generally receiving an additional 4-month extension to file.
SUMMARY
The choice is clear: either “Do It” or “Extend It.” It’s your choice, but also your responsibility.
There are other extensions available (e.g., an additional extension of time for taxpayers out of the country) but they are more complex and outside the scope of this article. The aim here is to get something accomplished – to stay within the boundaries of tax statutes. The option you select and perform will do just that.
______________________
IRS Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, I must inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.
Paul;
What if I’m just plain tired of paying into the Infernal Revenue Service? Is it legal to just ignore them, or thumb you nose at them? Would they forgive you if you just told them you’ve had a bad year and can’t afford to pay? If I sell a loaf of bread made in my new bread machine, may I deduct the cost of it as a business deduction? May I deduct the cost of what I have to pay you for answering these dumb questions? I’ll just file and shut up!
Hi Paul – Plenty of questions, indeed, and costly if you would pay for a consultation! I’ll give you some freebies, seeing how you’re a shipmate:
1) Tired = Take a nap then pay the IRS.
2) Ignore = Illegal, but they’ll forgive you if you show that you weren’t advocating that position and then you pay the IRS back taxes, penalties & interest on back taxes, current taxes and any penalties & interest on current taxes that might be charged and promise not to do that again.
3) Forgive = See #2.
4) Bread = You’d have to be able to show that you are in business and not just making money from a hobby. Your bread machine and all ingredients you buy for it must be used for the business only. If you want to enjoy your bread, you’d need to purchase it just like anyone else (taste testing and recipe testing are valid research and development expenses, however). Finally, you’d need to keep documentation on your income and expenses, run it like a business with books and separate bank accounts, and file the appropriate tax returns at tax time.
5) Answers = Yes, you may, but they fall into the category of miscellaneous deductions which, when miscellaneous expenses are totaled, are calculated as the excess of that total over 2% of your Adjusted Gross Income. If you only have the tax consultation expenses to report as miscellaneous deductions, chances are extremely good that they won’t be large enough to pass the 2% test and won’t be deductible.
6) File = Attaboy! 😆
you know any recommended tax preparers here in the PI?
Hi Richard – Sorry, outside of myself, I really don’t know who’s out there.
I know they are out there, but I haven’t run across them – my fault as I just arrived in the islands last July after retiring as a tax accountant, and I never planned to go out looking.
Perhaps others can chime in here and provide us with what they know.
(You can contact me via the “Contact Us” tab at the top of this page if you desire.)
Paul;
Thanks for your speedy response; I guess I’ll never make any bread making bread. I’ll learn to survive without the extra income.
Richard;
Since I don’t know where you reside I’ll just advise you go on the Internet look up RAO Philippines there are quite a few around the Islands. Find the Office closest to you, call and ask them. The RAO in Subic has an H&R Block rep. that comes every year. At any rate they will know something about it, and you don’t have to be Retired Military to call them. Their just regular folk like us.
Guess I won’t be making any bread from your bread, either. 😆
“…IRS agents pursued a 4-cent tax liability ($202.35 with penalty and interest)…”
What a fine use of tax dollars!!
I’ve always rounded the cents – am I missing something?
Hi Gary – Yes, the government certainly spent more to get those four pennies than the combined tax, penalties and interest together. Thus is the mentality you face!
Rounding is always an “option.” If a taxpayer does not round to the nearest dollar on his/her tax return and reports everything to the penny, the IRS can and does follow suit.
I’m uncertain about current times, but not rounding to the nearest dollar used to be a “flag” for a desk audit – additional opportunity and chance for computational errors.
Don’t know how true it is, but I’ve read recently that early filers have a higher chance of audits – all things equal.
I fill out the forms and file close to the deadline. I’m usually +/- pretty close to my estimated payments and withholdings. So I typically don’t have much of a refund or payment due on the 15th.
I’ve commented on your previous article how much I hate the exercise, but I always (grudgingly) “get ‘er done”.
Hi Gary – You are correct about early filers having a better chance of audit, but it’s not a “procedural” or “statutory” thing. It’s just a matter of “happenstance.”
IRS auditors are on the job 40+ hours a week, 50 weeks of the year. If they’ve nothing left from previous years to work on, they look for something to do. That early filer’s return looks quite promising, considering that the employee’s manager keeps an eye out for “slackers” in the workplace. 😉
Rule of thumb: If you’re going to file early, make sure your return is 110% correct.
I’ve always recommended that clients try to end up owing the IRS an insignificant amount at filing time. That way, they don’t provide an interest-free loan of refund money to the government and, with payment not being due until the required first filing date, they can drag their feet in providing “Sam” with pennies. 😆
Hi Paul, Just read your input on “one week warning” article and it brought up a question that I have; This year I will be retiring in the Philippines with my Filipino Wife. If I do not have a mailing service set up, is there any other way to get my 1099 Social security sent to me. Can they email these do you know? Also, my wife’s W-2’s from her last job?
Hi Denny – Unfortunately, for the SSA-1099, the Social Security Administration only provides copies (original, replacement, etc.) via the U.S. Mail. You can make a request for a copy on-line, but they will mail the copy.
So it appears that you will need a mailing service or other method of receiving U.S. Mail to receive it. Of course, if you have a trusted relative (son/daughter/etc.) handling your mail and he/she has the ability to scan the document into .pdf format and email it to you, that would work just fine.
As to your wife’s W-2’s, it depends on how the company handles payroll. The company may use a payroll service (or they themselves have online capabilities) that provide a copy of the W-2’s electronically. You would have to check with the company. Otherwise, the info for the SSA-1099 applies in this situation as well.
Good luck. (Personally, I’m lucky enough to have all necessary tax forms available electronically. That will change when I start to draw SS benefits!)
Thanks for the timely and always informative info, Paul.
I just wanted to mention that some years ago I ran into a case where a good US friend of mine here in the Philippines got himself into years of heartache.
He was annoyed about having to pay income tax so, without thinking things through, he decided to stage his own one-man tax revolt. Just didn’t file for a number of years.
He also ignored all mail he received from the IRS. You can probably guess what happened.
Like many of us here, his income was mainly from a YS government pension. One day he looked in his direct deposit account and it was nearly empty. His monthly retirement annuity hadn’t been deposited.
Military and Civil Service government annuities can’t be garnished or attached as easily as some other pensions, but for a debt against the US government, all bets are off.
The sad part was, after years paying off penalties and getting his life back in order, the majority of years he had refused to file, he would have gotten a refund for.
Whatever you do, don’t do nothing is my advice.
Hi Dave – Your advice is so correct! Just the act of doing something positive shows a “good faith” attempt at compliance and often results in less costly penalties (or even penalty waivers).
Since special agents of the Internal Revenue Service carry weapons, I wonder why they aren’t considered part of the “armed services”?
(Or are their actions considered “armed robbery”?) 😆
I noticed you did not mention here, is that you make a certain sum you do not have to file. Meaning retired and on pension from S/S…
Hi Lenny – No I did not. Though the article was aimed at taxpayers who file, I’ll comment here. You’ll see the minor complexity that kept it from being in the article.
While low-income retirees may not be required to file, I would suggest that they still do the calculations (e.g., completing the Social Security benefits worksheet located in the instructions for Form 1040 and Form 1040A, etc.) to make sure.
Tax Return Filing Requirements
Income, filing status and age generally determine whether you must file a return. Generally, you must file a return (for 2009) if your gross income from worldwide sources is at least the amount shown for your filing status presented here. (Gross income includes all income you receive in the form of money, goods, property and services that is not exempt from tax.)
Single – $,9,350
65 or older – $10,750
Head of household – $12,000
65 or older – $13,400
Qualifying widow(er) – $15,050
65 or older – $16,150
Married filing jointly – $18,700
Not living with spouse at end of year – $3,650
One spouse 65 or older – $19,800
Both spouses 65 or older – $20,900
Married filing separately – $3,650
Note: Since Social Security Benefits are included in gross income cited above, you may have to file a tax return if your benefits exceed the threshold.
For Social Security recipients:
A quick way to check if any Social Security benefits are taxable (requiring return filing), add the following items and compare their total to the base amount cited below:
1) One-half of the amount reported in Box 5 of your SSA-1099(s).
2) Taxable pensions, wages, interest, dividends, and other taxable income.
3) Tax-exempt interest income (such as interest on municipal bonds) plus any (listed) exclusions from income.
If the total of these items equals or is less than your base amount cited below, then none of your Social Security benefits are taxable.
S/S Base Amounts
– $25,000 if you are single, head of household, or qualified widow(er).
– $25,000 if you are married filing separately and you lived apart from your spouse for all of 2009.
– $32,000 if you are married filing jointly.
– $0 if you are married filing separately and lived with your spouse at any time during 2009.
That’s it in a nutshell! 😉
Hi Paul,
I represent a US bank and we’re in the Greater Manila area.
I have a need to US Tax training and was wondering if I could set up a meeting with you to discuss further.
Let me know if you’re available for a quick conference call and I can provide more details.
Thanks,
Catherine
Hi Catherine – Will respond via email. Thanks for your confidence.
Hi Paul,
It was informative looking at this thread. In relation to Catherine’s reply, do you conduct trainings as you mentioned you are a tax preparer. I wish to expand my knowledge in US taxation specifically filing tax returns. I did an IRS certification exam as a volunteer under IRS VITA. thanks will wait for your reply.
Edith
Hi Edith – Thank you for your kind words and thank you for your VITA work.
I am a licensed CPA (State of Ohio – active; State of California – inactive) with a primary accounting focus in the world of tax. Along with tax compliance (preparation), I provide tax advice and counseling, and do provide training that is tailored to a client’s needs. My clients include individuals, businesses, and other accountants.
As you may know, the Internal Revenue Service is revamping its policies and procedures with regard to tax preparers. They have yet to publish any regulations (temporary or permanent) or any further amplifying information regarding their plans to regulate paid tax preparers. To date, the proposals include required annual training, an examination, fees and more fees, and a “shotgun approach” as to who must comply.
They say, “The devil is in the details.” Once we see the details for these proposed regulations, we’ll all be able to determine what training is needed, who will be authorized to provide that training, what media of instruction are allowed, etc.
I would gladly entertain providing you with tax compliance training – I do have two suggestions, however:
1) We may want to hold future discussions via private email. If you wish, you can contact me via the brown “contact us” tab at the top of this page.
2) We will need to discuss your situation in detail as well as make sure we both know and understand the IRS’s new requirements, etc.
I’m looking forward to your response. Thank you again, Edith.
Hi again, Edith – Here’s a link that provides a little more information about the IRS’s plans:
http://www.aicpa.org/InterestAreas/Tax/NewsAndPublications/taxnews/Pages/20100819.aspx?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+AICPA_Tax+%28AICPA+Tax+Feed%29
BTW, if anyone needs to fill out a “form 1099 S” ,I found a blank form here http://goo.gl/EWD4X2. This site also has some tutorials on how to fill it out and a few contract documents.
Thanks, Paul – PDFfiller is certainly a handy website.
Form 1099-S:
For those readers who are not familiar with it, the IRS’ Form 1099-S, Proceeds From Real Estate Transactions, is the form that’s filed to report the sale or exchange of real estate to the IRS. It’s filed by the person responsible for closing the sale/exchange transaction with the IRS, and a copy is provided to both the seller/old owner of the real estate sold or exchanged and the buyer/new owner. This form has no other use.
The IRS has a library full of differing Forms-1099 (e.g., 1099-INT, 1099-DIV, 1099-MISC, &c.), each with a use and requirement focused on the type of income being reported.