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Tax Deadline

• File an extension – Some people automatically are given extensions. If you live and work abroad, you have until June 15 to file, though your taxes are still due April 17. If you are serving in Iraq, Afghanistan or other combat zones, you have until 180 days after you leave the combat zone to file and pay your taxes. If you live in an area recently affected by natural disasters, you may have until May 31 to file and pay.

If you really need extra time to prepare your tax return, file an extension by April 17 to request  until October 15 to avoid nasty 5%-per-month penalties for late filing and late payments. But remember, filing an extension gives you extra time to file, but not to pay, so it isn’t a solution if you can’t pay your tax.  Plus, once you enter your tax information you may be entitled to tax deductions and credits you didn’t know about so you may not even owe.

When you file, pay as much as you can with your tax return to avoid penalties and interest. As for the rest, the IRS feels your pain and is willing to work with you to devise alternate payment options. Here are a few:

• Fresh start for the unemployed – In March the IRS announced a new Fresh Start initiative. If you were unemployed for 30 days or longer in 2011 or 2012, they will waive the late payment penalty for six months. Form 1127-A (Application for Extension of Time for Payment of Income Tax for 2011 Due to Undue Hardship), which you can download from IRS.gov, will give you until October 15, 2012 to pay the taxes and interest that are due for your 2011 tax return. If you are self-employed and your business experienced at least a 25% decline in revenue due to the economy, you may also qualify for this Fresh Start.

• Installment payment plan – If you owe $50,000 or less, you can request a payment plan by going to IRS.gov and filling out the Online Payment Agreement you’ll find there, or call  800-829-1040. If you owe more than $50,000, you will need to complete a financial statement to determine the monthly payment amount for an installment plan.

• Hardship cases – If you will become destitute if you have to pay the taxes, you can fill out Form 911, Request for Taxpayer Advocate Service Assistance, to ask the IRS to delay tax collection. This isn’t your best option, since you’ll still be racking up penalties and interest and the IRS can file a lien against you.

• Offer in Compromise (OIC) – You may be able to make an offer to settle with the IRS for something less than is due. You’ll have to fill out Form 656 and show that you are unable to pay, for example, the amount owed is higher than your total assets and income.

If none of these options appeal to you, there are many places you can turn to get the money to pay your taxes, but make sure you find out about the tax consequences for some of them. Home equity loans, 401(k) loans and borrowing on cash value life insurance are possibilities for some. Credit cards can be used, though you will be charged a processing fee.

If you can’t pay your tax, don’t bury your head in the sand — hiding from the IRS is not a successful strategy and may cost you in the end. Failure to work with the IRS may incur stiff penalties, result in enforced collection action, and in extreme cases the end result could be criminal penalties and even jail time.

Here are five intriguing possibilities for passing the time:

Last-Minute Tax Prep

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Unfortunately, for some of us, the extra two days of filing time will be used finishing your tax return that would’ve been late under the normal deadline.

If this is you, don’t be too hard on yourself. It would have been preferable to finish early (and have the options below at your disposal) but instead of dwelling on leisure time lost, see these extra two days as your “get out of jail free” card—a rare opportunity to get away with waiting until the last minute.  Plus, preparing your taxes with TurboTax is easy even if you do wait until the last minute.

Spending Your Refund

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Those of you who did file early have something even sweeter than a two-day break: your refund check! Whether this year’s refund was $200 or $2,000, all that matters now is how you will spend it. The possibilities are endless and vary based on your priorities for the money. Are you behind on debt, and looking to chip away at the barriers holding you back from financial freedom? This weekend is the perfect time to sit down and pay some long-overdue bills.

Or, are you all caught up financially, but dying to make a long-delayed “impulse purchase?” Maybe it’s a new TV, or some new threads for your wardrobe. Whatever the case may be, this is the time to indulge—you’ve earned it! Use this weekend to invest your refund check wherever it will provide the best return.

Purposeful Relaxation

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Nearly all of us are guilty of putting relaxation on the back burner. In the rush to get all our ducks in a row, we push ourselves relentlessly, treating as luxuries such basic necessities as restful sleep or time to unwind. Yet, in the process, we deprive ourselves of the opportunity to recharge, to unburden ourselves from the many stressors, obligations, and worries that fill our minds and simply “be.”

Far-fetched or unnecessary as it may seem, research shows that relaxation is actually essential to well being. In addition to our work capabilities, we are also emotional and curious beings with needs that stretch far beyond productivity. To that end, spend your two free days immersed in relaxation: visit a day spa, get a massage, or simply sprawl out on the couch and enjoy an engrossing movie. Your mind and body will thank you for it.

Taking a Weekend Road Trip

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As humans, we are creatures of habit. We take comfort in familiar surroundings, routines, and activities that give structure and meaning to each day. Yet, at a certain point, habit begins to harm us rather than help. If we never push beyond our comfort zones or expose ourselves to any new experiences, our brains start to stagnate, becoming mired in the apathy and boredom that mind-numbing predictability creates. To dig ourselves out, we need a potent dose of the unfamiliar.

Now, we’re not saying the 9-5 office worker needs to reinvent himself as a starving artist. It can be a much smaller change: like taking a weekend road trip. With the extra two days this year’s tax deadline affords you, why not venture out onto the open road? Visit a popular landmark in the next state over. Travel to a town you’ve never seen before, and eat at one of the restaurants. The simple act of seeing and experiencing something new will stir the neurons in your brain like nothing at home will.

Resurrecting a Neglected Hobby

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In the noisy chaos of daily life, nothing feels less important than our hobbies. No one nags you about not practicing your guitar often enough, or failing to hike as frequently as possible. And of course, it’s good to be on top of the things that matter in your professional life. But it’s when you ignore your hobbies too much, that you’ve become a workaholic, and must get back in touch. The world is perfectly happy to let you bury your passion beneath its demands. If you want to avoid feeling like a lifeless automaton (productive but totally lacking in the soul-stirring excitement that makes life worth living) you need to actively and zealously make time for your passions.

Now is a perfect time to start. With two free days at your disposal, resolve to guiltlessly resurrect a hobby you’ve been sacrificing. And don’t just pick up your instrument or head to the batting cages: do it with gusto and enthusiasm, remembering that these activities supply your zest for living.

Interactive by Column Five Media

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If it’s stock transactions, have no fear. I’m going to tell you four things you need to know about stock transactions and how TurboTax makes this easy. And while I’m using the term stock transactions generically, they can include bond sales and other “capital asset” sales.

First, TurboTax determines your holding period based on your purchase and sale dates and then computes the correct tax automatically. However, the first thing you need to know about stock transactions is that the gain or loss can either be long- or short-term. This refers to how long you held the investment. Short-term is a holding period of less than one year. Any holding period of longer than one year qualifies the gain or less as long-term. The holding period determines whether you get preferential tax – short term gains are taxed at regular rates (up to xx%) while long term gains are taxed at a maximum 15%.

Second, stock sales can also result in losses, which in this market many of us know quite well. While stock losses hurt, they can be somewhat beneficial because they offset stock gains and other income. The rules for netting gains and losses can be confusing, but once again, TurboTax does all this for you automatically. The other thing to keep in mind is that if after netting stock losses and gains, you have a loss, you can use up to $3000 of that loss to offset other income. Any remaining loss beyond the $3000 can be used to offset income in subsequent years. So, your financial loss today can provide tax benefits by also reducing your future taxable income. TurboTax automatically tracks this for you too.

Third, the IRS has in place diagnostic tools that match your sales to those reported by your broker. Therefore, it is important to account for all your stock transactions, otherwise you might receive one of those dreaded letters from the IRS!

Finally, the best way to overcome any concerns you may have in reporting your stock transactions is to automatically import your transactions from your broker. TurboTax does this, and supports over 100 financial institutions so it is highly likely yours participates. Importing stock transactions eliminates all data entry and ensures your reported transactions match exactly what the broker reported to the IRS. Importing is as simple as identifying your broker and then using your credentials to access your brokerage account. It takes just seconds to do. Once you try it and see the results, you’ll never turn back to manually entering your stock trades.

That’s it for stock transaction. Now it’s time to finish your tax return. Come see us for tax help next year. Get busy!

Laziness

(Evil Erin)

Sheer laziness is a common reason for late or non-filing, and a simple assessment of human nature makes it quite clear why. Unlike car payments or utilities (which trigger immediate consequences for falling behind), there are few if any explicit reminders to pay your income taxes. Put another way, April 15th can – and often does – pass without any visible friction or alarm if you neglected to file a return. The IRS does not send notices or agents to your home in the event that you do not file. Consequently, it is quite easy for a busy or careless person to put filing a return on the back burner amidst other responsibilities with more immediate consequences. Of course, this is not at all acceptable to the IRS. While you will not be discovered right away, make no mistake that you are being tracked in a backlog that someone will eventually see and investigate.

Forgetfulness

(Zoutedrop)

A similar but separate reason for filing late or not at all is forgetfulness. Whereas laziness involves being aware of the need to file and simply neglecting to put in the effort, forgetfulness is when someone “would have” filed, but claims that it just slipped their mind. TaxFables.com tells the story of Juan Ruiz, an owner of three Mexican restaurants who, “…explained that after his preparer gave him the return, he put it in his briefcase and then — just forgot it.” Plausible as such an excuse may sound, TaxFables concludes by stating, “…if you forget, don’t expect the IRS to forgive.” In short, forgetfulness is not a valid or accepted reason for filing late or not filing at all.

Confusion

(jakeliefer)

Another frequently stated excuse for not filing or filing late is confusion about the filing process. If you are an independent contractor, for instance, filing a tax return is significantly more complicated than filing as an employee. You are responsible for reporting income from the various people who pay you, claiming any deductions you feel you are justified in taking and (in most cases) doing all of this four times a year, rather than just once by April 15. Admittedly, the tax code can be quite confusing and difficult to deal with. The Tax Foundation, for instance, finds the net cost of tax compliance to individuals and businesses to be, “…roughly $275 billion and rising.” Again, however, confusion is no excuse for not filing or filing late as far as the IRS is concerned. It is expected that you will either research how to properly file or hire a professional who can do so on your behalf.

Death or Serious Illness of Taxpayer or Immediate Family

(tahitianlime)

It is quite understandable to delay the filing of a tax return for a death in one’s immediate family. Amidst the chaos and grieving that inevitably follows, the IRS grants some leniency in recognizing this as a legitimate reason for filing late. The same applies to serious illnesses, particularly those contracted by the taxpayer themselves. If you have a documented medical reason for being unable to file a return, the IRS will typically exempt you from fines or penalties connected to the late filing. That being said, the reason must be valid – do not do what Douglas D. Kemmerer did (according to TaxFables.com) and blame not filing ten years of returns on a convoluted disease like “tax phobia.”

Invalid Advice From a “Competent” Professional

(Dominic’s Pics)

Another oft-cited reason for not filing or for filing late is that you were advised toward that course of action by a professional, such as a tax preparer or attorney. Within certain limits, this is an excuse that the IRS will accept. Don’t interpret this too liberally, however. The IRS will not let you off the hook because your smart uncle advised that you did not have to file. Rather, they will investigate whether the person who gave you incorrect advice was a competent or licensed professional. Beyond that, they will likely investigate why a competent or licensed professional told you not to file a return when the law ultimately required you to.

Belief That Paying Income Taxes is Voluntary

(respres)

A long line of scam artists have persisted in spreading the myth that paying income taxes is voluntary or even a violation of Constitutional rights. TaxGuru.org offers a helpful rebuttal of these myths, including the notion that money is not income because it isn’t backed by gold and that income taxes only apply to federal government employees. Simply put, these ideas are incorrect. As TaxGuru points out, people have done serious jail time for failing to voluntarily pay their income taxes or file returns. While the IRS does its best to deter those who spread these myths, they display no leniency to those who fall for them, either. Attempts to justify late or non-filing using any of them can land you an, “…immediate $10,000 fine” plus whatever penalties already applied to your misdeeds, according to TaxGuru.org.

Active Duty Military Service

(Beverly & Pack)

Those who are deployed internationally in connection with active duty military service are eligible for extensions on filing their income tax returns. As eHow.com explains, “…if you were active in a combat zone, you are not required to submit any additional forms because the Department of Defense shares the names and social security numbers of service members who are deployed.” If in doubt, however, it never hurts to check to make certain that this exemption applies to you.

Destruction of Records

(Stephancanada01)

The IRS typically grants leniency to taxpayers who can prove that their tax or financial records were destroyed at the time they were needed to prepare their return. That is, if your house burns down in a tragic fire and takes your filing cabinet with it, you wont go to jail or pay penalties for not filing. That being said, people have been caught “staging” the destruction of their records to get out of paying before. If you attempt to claim this as an excuse, be prepared for the possibility that the IRS will want to confirm whether your records were destroyed accidentally or coincidentally, rather than intentionally. Police reports, photographs, and eye-witness testimony may all be helpful in demonstrating that the destruction was not caused by you.

Ignorance

(Orin Zebest)

Every year, late and non-filers claim ignorance of one form or another as the reason for their misdeed. However, ignorance of the law does not excuse anyone from responsibility for complying with it. Bankrate.com discusses several common excuses falling under the ignorance banner, including:

• “I was afraid to do it wrong, so I just kept gathering information and lost track of time.”
• “My husband refused to file, so I didn’t know what to do.”
• “I was drunk and totally out of it for the last few years. Hey, I was living on the streets. Do you think I cared about taxes?”

Needless to say, none of these excuses hold any weight with the IRS whatsoever. As a sovereign citizen, it is assumed that you will take responsibility for understanding your tax obligations and reporting them in a timely and lawful manner.

Unavailability of IRS Help

(cliff1066™)

If you can demonstrate that the IRS was not available to assist you in filing your return in a timely and lawful manner, this is a recognized and accepted excuse for late filing. Again – whether you can, in practice, escape punishment using this excuse depends on the specifics of what happened. In all likelihood, you will not be able to avoid punishment because you were put on hold for a long time or didn’t get to speak with the first IRS assistant you called. Rather, it will need to be clear that you made an active and reasonable effort to seek help and despite this, did not receive it. Be sure to document the times and dates of any attempted and failed correspondence with the IRS, including who you were attempting to reach and by what means (phone, e-mail, snail mail, etc.)

Incarceration

(Corey Leopold)

While we don’t suspect many of our readers will be incarcerated anytime soon, it does serve as a valid excuse for filing late or not filing, because you either did not have access to your financial records or became incarcerated late in the filing season. Then again, most prisoners also do not have any income to report in the first place, so perhaps it’s best to avoid jail altogether and simply file on time.

Infographic by Column Five Media.

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Last-Minute Tax Tips for Procrastinators:

• Even procrastinators can save money on their taxes.  For example, taxpayers have up until the April 15 deadline to contribute to an IRA.
• Don’t forget charitable contributions made in 2009.  Even mileage to and from volunteering is deductible.
• Go online. Taxpayers can go online to prepare and e-file taxes up to the 11th hour at http://www.TurboTax.com.
• E-file.  Taxpayers can avoid the long lines at the post office and can get their refund back in as little as 8 days with direct deposit.
• Learn what tax breaks are disappearing. Better catch them before April 15.
• In the market for a home? It’s still not too late to get the Homebuyer Credit now rather than having to wait until next year.
• Need more time? Taxpayers will get an extra 6 months to file (to Oct. 15 2010). But remember…an extension to file is NOT an extension to pay taxes. TurboTax Easy Extension allows you to file your personal or business extension online.