Well, believe it or not it's that time of year again. Every April 15, we face our tax filing deadline in the United States. Each year about this time, Christian Money.com is inundated with questions from last-minute filers. Today I will address those questions and provide you with some useful links if you count yourself among those who have yet to file your federal tax return.1. How Can I Get An Extension Of Time If I Am Not Ready To File?
You can obtain an automatic six-month extension of time to file your tax return by filing IRS form 4868. This is an automatic extension, so you don't even need a good excuse to be able to get approved for the additional six months. If your tax return is not ready to file, be sure and get your extension in the mail with a postmark of no later than April 15.
2. What If I Can’t Pay The Taxes That I Owe?
If you owe taxes that you cannot pay, filing an extension will not be a resolution to your problem. When you file form 4868, you are simply receiving a six-month extension of time to file your return. You must make an estimated payment of what taxes your owe, despite the fact that your tax return may not be ready to file. If you cannot pay your taxes, you should request to be approved for a payment plan. There are a wide variety of ways to apply for a payment plan, depending on the amount that you owe and the nature of your situation. Here is a link to the IRS info page on the issue of installment payment plans. The IRS recently announced that they are being more lenient with taxpayers who owe delinquent taxes. This is apparently due to the number of people impacted by the recession.
3. What Tax Consequences Do I Have For Money Withdrawn From My Retirement Plan?
I have probably received more questions on this issue than I have in any other prior year. It seems like due to the recession many people have had no other option but to tap into their retirement accounts. Any money that you withdraw from a qualified retirement plan is considered income in the year that you made the withdrawal. Additionally, based on your age and the type of plan, you may be subject to a 10% early withdrawal penalty. Another aspect to this that is many times overlooked, is when a retirement plan loan is not repaid. If you default on the loan payments to your retirement account, or do not pay back the entire loan within 60 days of separating from service, the entire amount of the loan is treated as a withdrawal. Be sure and inform your tax preparer about the details of any retirement plan withdrawal you may have made during the last tax year. It would be better to declare that income and pay the taxes on it now, rather than face additional penalties and interest later.
4. What If I Lost My Home To Foreclosure, Do I Have Any Special Tax Consderations?
From the IRS website:
The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
What should be noted above this change in the tax rules, is that it only applies to a person's principal residence. Prior to this tax law change, if you lost a home to foreclosure and there was a deficiency (the amount that you owed which was greater than the house sold for at auction), you would have to declare that as income. If you had a foreclosure during the last tax year which involved a rental property, or any other real estate other than your principal residence, you may have a tax liability. It is important for your review IRS publication 4681.
Please let me know if I can point you in the right direction for any information you may need to get your tax return or extension in by April 15.
Helping you make the most of God’s money!