F1 - File Something
If you can't get your tax returns completed by April 15th, make sure to file for an automatic extension. Filing something on April 15th is the only way to avoid the Failure to File Penalty equal to five percent per month on any federal income taxes due. Yes, expect the IRS to charge you $50 per month on every $1,000 of taxes owed as of 4/15 if you don't file your tax return or extension request by that date.
Filing for an extension is easy. Simply submit a Form 4868 (http://www.irs.gov/pub/irs-pdf/f4868.pdf) TO the IRS, along with a check for an estimate of the taxes you might owe, if anything. Even if you're confident you'll be getting a refund, it's still a smart idea to file for an automatic extension.
By submitting an extension request (Form 4868) prior to the tax return due date, the Failure to File penalty of five percent per month is replaced with a much more reasonable Failure to Pay penalty of one-half percent per month. That's a pretty good return on your $.42 stamp used to mail the one-page automatic extension request, Form 4868, to the IRS.
Plus, if you end up owing the IRS no more than the greater of 10% of your total federal tax liability or $1,000, you should not be assessed any penalties at all, as long as you file your federal tax return by October 15th. In this case, you'll only owe interest to the IRS on your balance due.
F2 - Figure Your 2009 Estimates
April 15th is also the due date for paying your first quarter estimates. If your federal withholding will not be sufficient to ensure that you won't be hit with an underpayment penalty for 2009, your only alternative is to remit estimated taxes on a quarterly basis.
To avoid being penalized, your taxes paid in during the year must generally exceed the lesser of 100% of your prior year's tax (110% if your AGI is $150,000 or higher in 2008) or 90% of your 2009 tax liability. Assuming your income won't change much next year, simply base your estimates on your 2008 tax liability and withholdings.
Thanks to the American Recovery and Reinvestment Act of 2009, certain individuals can base their 2009 estimates on 90% of their 2008 tax liability. To qualify, your 2008 AGI must be less than $500,000 and you must certify that more than 50% of your income reflected on your 2008 return was from a small business with less than 500 employees during the year.
F3 - Fund Your IRAs
When it comes to your IRAs, the deadline to put away money for 2008 is April 15, 2009, even if you file an extension. This deadline applies for traditional IRAs and Roth IRAs.
For 2008, you can contribute up to $5,000 into an IRA. Anyone 50 or older as of December 31, 2008 can put away an extra $1,000. If you're married, both spouses can contribute to an IRA provided one spouse has earned income during the year in excess of the total amount to be contributed.
One great reason to contribute to an IRA this year is to take advantage of the rule allowing all taxpayers to convert their IRAs to a Roth IRA in 2010. Prior to January 1, 2010, only taxpayers earning less than $100,000 could convert their retirement accounts to a Roth IRA.
Remember, there is also a relatively modest income limitation for Roth contributions. If your 2008 AGI exceeds $116k if single or $169k if married, you aren't allowed to contribute any money into a Roth IRA. Many middle and high-income taxpayers have never had the opportunity to contribute to a Roth IRA due to these phase-outs.
Making a non-deductible IRA contribution now will allow you to convert that account to a Roth IRA next year. We wrote about this opportunity in our March 2007 newsletter (http://www.findagoodcpa.com/2007news/news0307.php), and it's a great strategy for middle and high income taxpayers to finally get some money into a Roth IRA without giving up a current year tax break.
Are you self-employed? If so, filing an extension might make a lot of sense since it buys you an additional six months to establish and fund your SEP IRA for 2008. It's not uncommon for self-employed individuals to pay all of their taxes due with an extension, and then fund their SEP IRA and file their tax forms in the fall.
F4 - Fix Your Withholdings
Were you surprised with either a substantial balance due or a substantial refund for 2008? If so, take this opportunity to adjust your withholdings at work to hopefully come closer to breaking even on your taxes for 2009.
Keep in mind that while the W-4 Form (http://www.irs.gov/pub/irs-pdf/fw4.pdf) seems easy enough to complete, this IRS form doesn't always work so well. One problem is that each employer thinks that they are your only employer. Plus, if you're married, the withholding tables assume your spouse doesn't work.
Here's what you need to know when completing a new W-4 form with your employer's payroll department. You'll have less taxes withheld by claiming Married versus Single and also with each additional "allowance" that you claim. You might need to submit a W-4 form multiple times until your pay check finally has the correct amount of taxes withheld each pay period.
F5 - For More Info on Your April 15th Options
Check out these articles on prior MDTAXES newsletters:
Or listen to these podcasts about filing for an extension:
About Andrew D. Schwartz CPA
Andrew D. Schwartz, CPA is the editor and founder of www.FindAGoodCPA.com, a site where taxpayers can interact with CPAs who specialize in a variety of niches such as healthcare, real estate professionals, and lawyers. Schwartz has provided tax and basic financial planning advice in interviews with various media, including the Washington Post and Wall Street Journal. He is available for interviews.
