As Tax D-Day Approaches, You Can Retreat--At a Cost
By Leonard Wiener
For millions of Americans, meeting the tax filing deadline is an impossible dream. The IRS predicts that 8 million law-abiding procrastinators will let midnight April 16 slip by without completing their 2000 returns. Meanwhile, some 13 million taxpayers who make estimated quarterly payments to supplement withholding must begin that chore for this tax year based on a prediction of their tax bill. Here are ways to temper this devilish period:
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Just a bit longer. The deadline for most people this year is April 16 because the 15th falls on a Sunday. But residents of New England and upstate New York get until April 17 because the 16th is Patriots Day, which closes the facility in Massachusetts that handles their returns. Give a high-five to the Postal Service: A return postmarked on the due date is considered filed on time. Postal Service spokesman Mark Saunders says that envelopes picked up from mailboxes by early evening on the 16th are "extremely likely" to be postmarked that day. Many post offices stay open late to accept last-minute returns. Those who file by computer are generally considered to have filed when they transmit the return.
There's no penalty for filing late if you're due a refund. But if you owe tax--or a refund is later disallowed--a return filed a few days late could lead to a penalty of 5 percent of the tax due.
Procrastinator's heaven. You can extend the filing deadline to August 15 just by asking. The usual way is to mail in Form 4868. But this year you can make your request by calling the IRS toll free at (888) 796-1074. "You don't need an excuse or a stamp," says IRS spokesman Don Roberts. One catch: If you owe tax when you later file, the IRS will charge interest from the original due date--currently an 8 percent annual rate. There's also a penalty of 0.5 percent a month if the amount owed is more than 10 percent of your total tax. (States also give extensions.)
To get extra time, you must make a good faith projection of your tax liability. Though you don't have to make a payment, forking over at least something can reduce the interest charge. When getting an extension by phone, you can ask to have funds transferred from a bank account--you'll need data from your 1999 tax return to confirm your identity. You can also get an extension and pay tax by credit card, for a fee of 2.5 percent--though Visa isn't accepted. That's done via Official Payments Corp. (800-272-9829; www.officialpayments.com) or PhoneCharge (888-255-8299; www.about1888alltaxx.com).
Looking ahead. If your withholding for 2001 will fall below your expected tax liability by more than 10 percent, you may be required to make estimated payments; the first is due this April 16. You are susceptible if you have substantial income from which tax isn't withheld--such as capital gains, self-employment earnings, or interest. Failing to make estimated payments can trigger a current penalty of 8 percent annual interest.
Those estimating taxes for the first time can find it confounding. "I got totally confused, then I got nervous," recalls Celeste Torres, a 33-year-old nurse in Waukegan, Ill., whose withholding was inadequate last year. She discovered this upon inheriting nearly $60,000 from her father's IRA, which was immediately taxable because of the unfortunate way the retirement account was set up. After consulting an accountant she made estimated payments totaling $4,875 for 2000. Based on one of several IRS formulas, that was enough to avoid a penalty, even though she and her husband owed an additional $11,752 on their 2000 return. For 2001, they will make estimated payments of $500 each quarter to cover tax on investment income they expect from the inheritance.
