Not sure you’ll be prepared to file and pay your total taxes due by April 15? Here’s what you need to know about filing an extension.

Sometimes, things beyond your control keep you from making that April 15 income tax filing deadline. Family emergencies. Too much time traveling for work. An overly complicated financial situation. Missing – required – forms from third parties.

Even though tax filing season is 2-1/2 months long, sometimes you’re just not ready. The IRS makes allowances for this by offering a six-month extension period. If you think you’re going to miss that mid-April milestone for the 2013 tax year, you should know that:

Anyone can file for an extension. If you’re a U.S. taxpayer, you’re eligible to file for what the IRS calls an “automatic” extension. The agency does not require an explanation for your request.

The IRS still wants you to pay your anticipated tax obligation by April 15. As the agency states on the required form, Although you are not required to make a payment of the tax you estimate as due, Form 4868 does not extend the time to pay taxes.

Does this mean that you absolutely must submit all of the money owed by April 15? Again, in the words of the Internal Revenue Service, Your extension will be automatically processed when you pay part or all of your estimated income tax electronically.

We recommend that you pay all of what you anticipate owing if at all possible, but at least submit as much as you possibly can.

The IRS charges interest on late payments made via an extension. You’ll pay interest on any unpaid tax amount until you pay in full.

The IRS will assess a late payment penalty for every month or part of a month past April 15, 2014 that total tax remains unpaid. Generally, the charge runs one-half to one percent of your taxes due (except for any estimated tax you paid). Max is 25 percent.

You can ask that the late payment penalty be waived because of your circumstances. If you think that you have a good reason for the penalty to be excused, attach a written explanation to your 1040 when you submit it. In order to be considered for penalty forgiveness, the IRS requires that you’ve paid at least 90 percent of your 2013 tax liability by April 15, 2014. These funds can come in through withholding or estimated payments, and/or they can accompany the Form 4868.

You may also be given a penalty for filing late. Late filing penalties are usually charged when a return is filed after the due date (including extensions). The IRS normally calculates it as 5 percent of the amount owed for every full or partial month. Max is 25 percent. Here, too, the IRS may waive the fee if you attach a statement explaining the reason for your tardiness.

There are three ways to file a Form 4868 (the form required when you request an extension). You can:

• File the Form 4868 using the Electronic Federal Tax Payment System (EFTPS), and submit the entire amount due or a portion of it. You can also use a credit or debit card.
• E-file the Form 4868, or
• Use the official IRS Form 4868 paper form.

Sometimes, a late tax return is unavoidable, and it’s worth paying the extra fees to make sure that your return is correct. But if you find yourself making a practice of filing extensions because you either wait too long to pull together your financial documents or you can’t pay the full amount on time given the amount of your obligation, talk to us about year-round tax planning. April 15 doesn’t have to be a day to dread.

Filed under: Newsletter, Taxes by Katie Bluhm
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Feeling generous? Want to give a gift of cash or something equivalent to a family member or friend? You should understand the tax implications.

There are numerous reasons why you might want to give a gift to someone you know. Maybe a family member has gone through some hard times, or a friend’s child needs help with school tuition. Or you’ve come into something of a windfall and just want to share the wealth.

The IRS has very clear rules about the tax implications of gifting. So before you bestow a part of what you own to someone, check with us to make sure you understand when taxes might be due.

What about small gifts?

You don’t have to worry about the hundred-dollar bills that you tuck into holiday or birthday cards, though the IRS considers any gift to be taxable.

The agency defines “gift tax” as applicable when you give something to another person without the expectation that you’ll be getting something at least equal in value in return. These “somethings,” according to the IRS, can be:

• Tangible or intangible property, which includes money
• The use of property, or
• The right to receive income from property.

The IRS may also assess a gift tax in situations where you sell something for a price that is less than its value, or if you offer someone a reduced-interest or interest-free loan.

If all gifts are taxable, why have I never had to pay a gift tax?

There are many exceptions, including gifts that go to:

• Your spouse
• A political organization for its use, and
• Charitable contributions.

If you send money to an educational institution for someone else’s tuition or to a medical facility for expenses incurred by another individual, you do not have to pay gift tax.

The most common scenario involves the outright gifting of cash to someone other than a spouse. These gifts are only taxed if they consist of an amount that’s greater than the annual exclusion for the calendar year. Which means you can give away up to $14,000 to as many people as you want for the 2014 tax year without being taxed.

What happens if you give more?

If you, for example, give your adult son $30,000 because he’s buying a house and you want to help with the down payment, the first $14,000 of that is not taxed, thanks to the annual exclusion.

And the remaining $16,000? That may or may not be taxed, depending on something called the “applicable credit.” We can help you calculate in a situation like this. Even if no gift tax is due here, though, you will have to file a gift tax return. There are other scenarios where this would also be required.

You can be generous without being taxed. But be sure you know exactly where the lines are drawn.

Filed under: Newsletter, Taxes by Katie Bluhm
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Yes, the word strikes fear in every taxpayer’s heart. Here are the basics.

You may know someone who’s been through an IRS audit. You’ve at least heard that it can be a grueling, complex process. But how much do you really know about this potentially-unpleasant procedure? Here’s some of what every business owner should know.

What is an IRS audit?

In an audit, the IRS examines your company’s accounts and financial information. The agency’s intent is to make sure that your return is in accordance with tax laws and that you paid the correct amount of tax.

How are businesses selected for audits?

If that notice comes in the mail (the IRS does not send audit notification through email, so don’t give out personal information online to someone who purports to be a representative) or you get a phone call in addition, don’t assume that the IRS believes you’ve made an error of some kind. Audit subjects are selected in one of three ways:

• Random selection/computer screening
• Document-matching (W-2s or 1099s, for example, don’t match information claimed on the return), or
• Involvement of related returns (if one of your business partners, investors, etc. is audited, you may become a part of that audit).

How are audits conducted?

Audits occur through the mail or in person. If it’s the latter, you may meet in your home, at your office, at an IRS office or at your accountant’s location.

Are changes always requested?

No. Sometimes your return will be approved as filed. If you are asked to make changes, you’ll get a thorough explanation.

How long does an audit take?

It depends on several factors, including the audit type, your ability to produce the requested documents, the level of complexity, the ease of scheduling meetings with all involved and your reaction to the audit’s results.

What records will I be asked to produce?

You’ll get this information in writing. Electronic records may be acceptable, but check with your auditor to make sure they’re in an acceptable format. Remember that you should be keeping copies of all tax-related documents for at last three years after you file a return.

What rights do I have in an audit?

Many. They include the right to:

• Be treated courteously and with respect by IRS representatives
• Receive explanations of the rationale for requesting information, how it will be used and what the ramifications of not providing it are
• Privacy and confidentiality
• Represent yourself or appoint an authorized representative, and
• Appeal findings that you don’t think are warranted, either through the IRS itself or the court system.

Can I do anything to avoid an audit?

Not if you’re simply selected randomly or you’re involved with an entity that is audited. But we can help you throughout the year as you manage tax-related accounting tasks. We’ll prepare relevant reports, be involved in business decisions that can have impact on your current return and help you keep an eye out for every possible legitimate deduction.

We don’t want you to obsess about the possibility of an IRS audit, but we do want to contribute to the peace of mind that can come through year-round awareness of your income tax obligation.

Filed under: Newsletter, Taxes by Katie Bluhm
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