If you can’t file your 2008 federal income tax return with the
Internal Revenue Service by April 15 and have to file for an Oct. 15 extension, you can still save on interest and penalties.
It’s a good idea to pay your estimated 2008 tax liability, using Form 4868, to minimize interest and penalties. However, you are no longer required to pay the estimated tax balance with the extension form in order to receive the extra time to file your return.
If you can’t make the full payment, and you are required to make quarterly estimated payments, you should consider adding all or part of your 2009 first-quarter estimated payment to the extension payment.
Paying an additional amount with Form 4868, rather than making an estimated payment on April 15 for the next year, is easier and provides greater protection against an invalid extension if income has been underestimated.
Generally, the tax return and any unpaid tax will ultimately be due by Oct. 15. Interest will be charged on the late payment from April 15 to the date of filing. The interest rate is 4%, effective April 1. You should pay as much as possible with the extension form to minimize interest and penalties.
The IRS requires you to estimate your 2008 tax liability, using the information available to you.
You can now request an automatic six-month extension by filing Form 4868 electronically via the IRS’s E-file service, which is available at www.irs.gov.
You do not need a reason for the extension or a signature on the form, which must be filed on or before April 15.
Paper forms are also accepted.
An extension can also be filed through a credit card company authorized by the IRS to accept payments. But be aware that you will be subject to an extra charge if you use a credit card company.
If you don’t ask for an extension and file by the April 15 deadline, you must also submit any balance due.
Installment plan
If you do not have sufficient funds to pay the tax balance due on your 2008 return when it is ultimately submitted, consider setting up either a monthly installment plan or a short-term extension of up to 120 days.
IRS Commissioner Douglas Shulman has empowered IRS personnel to be more flexible and understanding with taxpayer debt obligations, considering the
recession, according to IRS spokesman Raphael Tulino.
The IRS has made it much easier in recent years for individuals owing $25,000 or less in combined tax, interest and penalties to pay in installments. It has an interactive installment agreement calculator for your use at the IRS website.
You can also make your request manually by attaching Form 9465 to the front of your 2008 balance-due federal tax return. Indicate on Form 9465 the amount you are able to pay at the time of filing, your proposed monthly payment and the date each month on which you intend to make such payments.
The IRS expects your proposed installment plan to be reasonable and will usually act on an installment payment request within 10 days, if submitted electronically.
But there is an administrative charge of $43 to $105 for establishing a monthly installment agreement. Interest and late-payment penalties may also be due.
Other rules include the requirement that the taxpayer meet all future tax liabilities on a timely basis. If you fail to make your installment payments, collection of the tax can be accelerated. If you request a short-term extension of up to 120 days, there are no administrative charges.
Exceptions
Special rules for extensions to Dec. 15 apply to taxpayers living abroad on April 15.
Men and women serving in the Armed Forces in a combat zone or in qualified hazardous-duty areas are entitled to special extension rules (see IRS Publication 3, “Armed Forces Tax Guide” at the IRS website for details.)
Joseph W. Walloch is a certified public accountant in Redlands, Calif. He holds a master’s degree in taxation and was recently named one of “The Top 50 Tax Professionals in America” by CPA Magazine. He can be reached at www.walloch.com.
