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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.

Tax Lawyers Minneapolis | IRS Increases Interest Rates for the Second Quarter of 2011

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The Internal Revenue Service announced that the interest rates for the calendar quarter beginning April 1, 2011, will increase by one percentage point. Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. With respect to corporations, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points.The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

Hence, the rates will be as follows:

Overpayment

3% – for corporations
4% – individuals
1.5% for the portion of corporate overpayment exceeding $10,000.

Underpayment

4% generally
6% for large corporate underpayments

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!

Getting Prior Year Tax Information from the IRS

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If you need to obtain certain prior year tax return information, it is possible to a copy of the actual processed return from the IRS. Often, however, the information you need may be contained in a tax transcript, which can also be obtained directly from the IRS.

Tax Return Transcript versus Tax Account Transcript

There are two types of tax transcripts: tax return transcript and tax account transcript.

A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not, however, reflect any changes made after the return was filed.

On the other hand, a tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. However, a tax account transcript reveals only the most basic data, such as marital status, type of return filed, adjusted gross income and taxable income, is included in the transcript.

Obtaining Transcripts

There are three ways to order either type of transcripts: on the phone (800-908-9946), online (the IRS website), and by mail. If you choose to obtain your tax transcript by mail, you need to figure out which form you need to file.

1. 1040, 1040A, 1040EZ tax return transcript: you will need to complete and mail Form 4506T-EZ.

2. Business Forms and Other Individual Forms: you will need to complete and mail Form Form 4506T, Request for Transcript of Tax Return.

If you order online or by phone, you should receive your tax return transcript within 5 to 10 days from the time the IRS receives your request. Allow 30 calendar days for delivery of a tax account transcript if you order by mail using Form 4506T or Form 4506T-EZ.

The IRS does not charge a fee for transcripts, which are presently available for the current tax year as well as the past three tax years.

Obtaining Actual Copy of a Previously-Processed Tax Return

If you need an actual copy of a previously processed tax return, it will cost $57 for each tax year that you order. You need to complete and mail (to appropriate address) Form 4506, Request for Copy of Tax Return. Copies are generally available for the current year as well as the past six years. The general wait period is about 60 days.

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If you have any tax questions, contact Sherayzen Law Office to discuss your case with an experienced Minneapolis tax attorney.