Tony's Tax Tips

Your Tax Return

This article originally appeared in the Pasadena Star News on April 15, 2006.

YOUR TAX RETURN IS DUE ON MONDAY, APRIL 17TH - Just in case you have somehow missed this information, you will have to file your Federal Form 1040 U.S. Individual Income Tax Return and your Form 540 California Resident Income Tax Return on Monday, April 17, 2006. If you are responsible for filing a Partnership, Limited Liability Company (LLC) or Trust return, they are also due on Monday, April 17, 2006.

C. Anthony Phillips, CPA

YOU MAY ASK FOR AN EXTENSION – If you are unable to file your tax return by April 17, 2006, you may obtain an extension of time by filing federal Form 4868.  This form may be downloaded by clicking on "Extension Forms" on the IRS web site located at www.irs.gov/formspubs/.  If you file federal Form 4868 and you do not owe any California tax, you do not have to file for a California extension.  The due date of your tax return will be automatically extended for six months until Monday, October 16, 2006.

YOU STILL OWE THE TAX DUE ON MONDAY, APRIL 17TH – Even if you obtain an extension for the filing of your individual incomer tax return, you still have to pay the tax that is owed when you file the extension.

WHAT HAPPENS IF YOU DON'T - If you do not file for an extension of your individual income tax return, you will be subject to a Federal failure-to-pay penalty of 5% percent of the unpaid tax for each month you do not file, up to a maximum of 25% of the unpaid tax.  If your return is more than 60 days late, the minimum penalty is equal to $100 or 100% of the tax due, whichever is lower.  If you intentionally disregard filing your tax return, the IRS may add an additional penalty of 20% of the tax understatement.  In California, even if you do not have a tax due, you could be subject to a non-filing penalty.

WHAT HAPPENS IF YOU DON'T PAY – If you don't pay the tax that is due on April 17 you will be subject to a federal failure-to-pay penalty of one-half of 1% of the tax not paid, for each month, up to a maximum of 25%.  If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5% failure-to-file penalty is reduced by the failure-to-pay penalty.

HOW DOES THE IRS COLLECT TAX – The IRS can file a lien on your real, personal, tangible or intangible property subject to some exemptions and ultimately sell the property to satisfy the lien.  The last option of the IRS is to have you thrown in debtors’ prison and hung upside down in chains on a damp wall until the tax and penalties are paid (Just kidding!)

Tony Phillips, CPA has a certified public accounting firm, Phillips & Company in Pasadena and is President of Downstream Exchange Company which helps investors save taxes when they sell their investment property.

The above is not intended to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.