BY GREG MERMEL, CPA
Have you ever known
anyone whose dog actually ate their homework? My parents once had a dog
that would eat used facial tissues, and I can’t leave a yellow Post-It®
pad within my dog’s reach. But homework or tax forms? Not in my experience.
If you have reached this point in April without having dealt with your income taxes for last year, your reason really does not matter. No matter how colorful the story, who is going to hear it? Your roommate? Your cat? Your agent? The Internal Revenue Service (IRS), and its state counterparts, are singularly unemotional and uninterested in literary creativity. If you do nothing before April 15, there will be a penalty.
Granted, the IRS will waive penalties where reasonable cause exists for late filing or late payment, but procrastination is not reasonable cause. The tax regulations cite death, serious illness, unavoidable absence (like kidnapping), casualty and disaster as circumstances where reasonable cause may exist. And even then, you have to wait for them to assess the penalty, send them a letter pleading your case and wait for a response.
There Are Easier Ways
Millions of people, I am sure, will be hastily throwing their tax forms together in these last few days before the deadline, and mailing them at the last minute. I am equally sure that some of them will succeed in doing it right. But I also know that many will fail. At best, they merely pay too much tax; at worst, the mistakes trigger error notices, penalties and interest.
Instead of that frantic rush, file an extension request. The form is short and simple, and approval is automatic. Once you sent the form in, you have until Aug. 15 to complete your forms and send them in.
You may wonder why the IRS, normally hard-nosed and unforgiving, is so generous as to grant an automatic extension. Simply put, they have your money. If you have a refund coming, the longer you wait to file, the longer they get to keep the cash. If you owe money, you are supposed to make a reasonable estimate of the amount and pay it when you file the extension request. If you do not pay it, or ultimately find you did not pay enough, they will collect interest. And though they have never admitted it, IRS management is probably content to let extensions reduce the gigantic mounds of mail to be opened and processed in the few days after April 15.
In fact, the IRS is actually encouraging certain taxpayers to file extensions this year. Tax law is normally locked down, and the tax forms for a year finalized, by mid-autumn. This year, however, an economic stimulus bill, which includes some provisions affecting 2001 taxes, became law on March 9, 2002. Even though the IRS was able to revise the forms and post them on its Web site in barely two weeks, they are actively encouraging those affected by the new rules to file extensions.
The IRS and I, therefore, think alike: if you can’t do it correctly before April 15, get an extension and take the time to do it right.
What To Do
An extension request, form 4868, is simplicity itself. Aside from your name, address and Social Security number, it asks for three bits of information: (a) how much do you think your 2001 taxes will be? (b) how much have you paid so far (through withholding and quarterly estimated tax payments)? and (c) how much are you paying with the extension? Put it in the mail with your check, and make sure the envelope is postmarked on or before April 15.
Not having the form, of course, is an excuse as weak as blaming the dog. The tradition of libraries and post offices carrying most tax forms is rapidly waning with increased use of computers, so you may not find 4868s there. But you can easily download it from the IRS’s Web site, www.irs.ustreas.gov. You can come by my office; we always keep a supply handy for PerformInk readers. Or, if you are not making a payment and filed a return last year, you can file your extension request by phone by calling 888/796-1074; follow the prompts, and be sure to keep track of the confirmation number in case of problems.
States Want Your Attention, Too
Most states–including Illinois and those surrounding it–automatically grant a state extension if you have a federal one. You need not send them anything unless you are making a payment, and, if so, the form is only a voucher identifying the taxpayer and type of tax. Eight entities require a separate extension request on their own forms: Alaska, Connecticut, District of Columbia, Massachusetts, North Carolina and Virginia. Two others–Hawaii and New York–require a separate extension request either by using their own forms, or, if no payment is due, by submitting a copy of your federal 4868 before April 15. As with federal forms, these can usually be downloaded from the state’s Web site (for Illinois, www.revenue.state.il.us/forms/index.htm) or you can get one from my office.
Also Available from My Office.
My "Checklist of Potentially Deductible Items" is available year-round, and could be useful when you do, finally, get around to those tax returns. Just call or write (or visit) my office and we’ll provide one.
Are there money or tax questions you would like to see discussed in this column? Let me know, at 2835 N. Sheffield, Suite 311, Chicago, IL 60657, or 773/525-1778 (888/525-1778 outside the Chicago area).
Greg Mermel is a certified public accountant whose clients in the arts range from individual performers to major theatre companies and suppliers. He also sometimes produces theatre.