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Extension of Time to File Federal Tax Return for Individuals: Form 4868

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If an individual taxpayer cannot file his tax return by the due date of the return, the IRS allows most of such taxpayers to request an automatic six-month extension of time to file the return.

In order to do so, the taxpayer should file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, by the return due date. Generally, for the 2010 tax return, taxpayers who wish to take advantage of the extension will need to file Form 4868 on or before April 18, 2011 (the main exception is where a taxpayer operates based on fiscal year).

The most difficult part of filing-out Form 4868 is the requirement to show the “full amount properly estimated as tax” for such taxpayer for the relevant tax year. A taxpayer is deemed to have complied with the requirement when he makes a bona fide and reasonable estimate of his tax liability based on the information available to him at the time he makes his request for an extension.

Failure to properly estimate one’s tax liability may lead to the invalidation of the extension. This means that the return will be considered a regular delinquent return. Such determination, in turn, is likely to result in the imposition of failure to file and failure to pay penalties from the statutory due date. I emphasize that the penalties may be imposed from the original statutory due date where Form 4868 is invalidated.

It is important to emphasize that an extension of time to file is not equivalent to an extension of time to pay. It is generally true that, under the relevant Treasury regulations and IRS Notice 93-22, individual taxpayers still can file a valid Form 4868 and obtain an automatic extension without paying the properly estimated tax in full – this means, of course, that no late filing penalty is likely to be assessed. However, the taxpayers will still owe interest on any past due tax amount and may be subject to a late payment penalty if payment is not made by the regular due date of the return.

It is also important to note that other extension provisions, in addition to the regular Form 4868 automatic six-month extension, may apply, especially for taxpayers who live outside of the United States or who are part of the U.S. military, either on duty outside the United States or hospitalized as a result of injury. More exceptions are made for taxpayers who live in declared disaster areas.

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Preparing Individual Tax Returns: Top Five Errors

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Before filing your tax return, you should review it to make sure it is correct and complete. Here are the five most common errors on an individual tax return:

1. Incorrect or missing Social Security numbers.
2. Incorrect tax entered based on taxable income and filing status.
3. Withholding and/or estimated tax payments entered on the wrong line.
4. Math errors in addition and subtraction.
5. Computation errors in figuring out the taxable income, tax credits, standard deduction for age sixty-five or over or blind.

These are just few of the most common errors on a tax return – there are many more possible. The strong possibility of committing these errors make is imperative to review the entire tax return prior to filing it with the IRS. Remember, any errors on a tax return may result in processing delays and hold up any refund you may be entitled to.

Alternative Minimum Tax: Basic Facts for Tax Year 2010

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Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. Congress created the Alternative Minimum Tax AMT in 1969, targeting higher-income taxpayers who could claim so many deductions they owed little or no income tax. The AMT provides an alternative set of rules for calculating a taxpayer’s income tax. In general, these rules should determine the minimum amount of tax that someone with a certain amount of income should be required to pay. If a taxpayer’s regular tax falls below this minimum, he has to make up the difference by paying alternative minimum tax.

A taxpayer may have to pay the AMT if his taxable income for regular tax purposes (plus any adjustments and preference items that apply to him) are more than the AMT exemption amount.  The AMT exemption amounts are set by law for each filing status. For tax year 2010, Congress raised the AMT exemption amounts to the following levels:

$72,450 for a married couple filing a joint return and qualifying widows and  widowers;
$47,450 for singles and heads of household;
$36,225 for a married person filing separately.

The minimum AMT exemption amount for a child whose unearned income is taxed at the parents’  tax rate has increased to $6,700 for 2010.

Medical and Dental Expenses Deduction

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It may be possible for you to be able to deduct medical and dental care expenses incurred in the tax year 2010. This deduction, however, is available only if you itemize your deductions on Schedule A (Form 1040).

This deduction is allowed only for expenses primarily paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. The cost of drugs is deductible only for drugs that require a prescription (except insulin).

The deduction is allowed only by the amount by which your total medical care expenses for the year exceed 7.5 percent of your adjusted gross income. You can do this calculation on Form 1040, Schedule A in computing the amount deductible. The deduction is further reduced by any reimbursement (from the employer or insurance company). It makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

The good news is that you may include qualified medical expenses you pay for yourself, your spouse, and your dependents, including a person you claim as a dependent under a multiple support agreement. If either parent claims a child as a dependent under the rules for divorced or separated parents, each parent may deduct the medical expenses he or she actually pays for the child. Furthermore, you can also deduct medical expenses you paid for someone who would have qualified as your dependent except that the person didn’t meet the gross income or joint return test.

You may also deduct transportation costs primarily for and essential to medical care that qualify as medical expenses. The actual fare for a taxi, bus, train, or ambulance may be deducted. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses. With either method you may include tolls and parking fees.

Finally, distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if you pay qualified medical expenses.

If you have any questions with respect to your tax return, contact Sherayzen Law Office NOW and discuss your case with an experienced Minneapolis tax attorney!

Understanding Citations of Treasury Regulations

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Understanding how to cite Treasury Regulations is crucial to being able to find the regulations relevant to a tax case.  This is why I devote this brief essay to explaining the location and basics of citation of Treasury Regulations.

Treasury Regulations are located in Title 26 of the Code of Federal Regulations (“C.F.R.”).  This corresponds to title 26 of the United States Code.

The overall form of citation is as follows: C.F.R. part number, a decimal point, a Code section number, a dash, and a number of further subdivisions.  The “C.F.R. part number” basically indicates the general nature of the regulations – i.e. to what area is the regulation related.  The numbers are assigned to areas in the following way: “1″ relates to income tax, “20″ relates to estate tax, “25″ relates to gift tax; “31″ relates to employment tax (withholding), “301″ relates to administration and procedure, and “601″ relates to the Commissioner’s rules.

Let’s look at a specific example and try to decipher what it says at according to the general form described above: Treas. Reg. § 1.162-1.  “Treas. Reg.” is a common form of abbreviation of “Treasury Regulations”; “1″ is a C.F.R. part number which tells the reader that this regulation relates to the income tax;  “162″ is a Code section number which specifically discusses the deduction of business expenses; “ dash 1″ indicates a citation to the first subdivision of the regulation.  In sum, Treas. Reg. § 1.162-1 refers directly to a first subdivision of the regulation with respect to business expense deduction from income tax.

The ability to quickly read, understand, and find a relevant treasury regulation is just one of the many skills that an experienced tax attorney needs to have.