The Tax Attic with Jerry Coon

Last minute advice for filing

The end of this tax season occurs on Thursday, April 15 for the approximately 80% of all taxpayers who file their tax returns on or before April 15. That still leaves, however, almost 20% who aren’t going to make the filing deadline.

What are the consequences of not filing a return? The answer depends upon whether or not an extension is filed. The federal rules for extensions are slightly different than the Michigan rules so let me go over the Michigan rules first.

Michigan only recognizes an extension as valid if the taxpayer pays any tax that may be due when the actual return is eventually filed. If there is a balance due when the return is filed, even if an extension was timely filed, Michigan will ignore the extension and access penalties from April 15 onward. Those penalties are 5% per month along with about 9% annual interest tacked on top. It’s very expensive to owe Michigan some money.

We do everything possible to make sure taxpayers do not owe Michigan a cent after April 15. We recommend that they pay Michigan a safe amount of money when they file that extension. The federal rules are slightly more taxpayer friendly. If you file a valid extension, you will avoid a 4 1/2% per month penalty that would apply to the first five months a return is filed late. For those of us fuzzy on math, the total for a failure to file that extension amounts to 22.5% after five months. The federal government doesn’t like taxpayers to owe money when the return is finally submitted but they do seem to recognize that taxpayers don’t necessarily want to owe either. There are so many variables in some returns today, that a balance due happens sometimes.

In the tax business, I call it having a lot of “moving parts”. The more moving parts, the more difficult it becomes to calculate a true bottom line. The Internal Revenue Service will not be happy there is a balance due. However, unlike Michigan, they will not ignore the extension. They will still assess a ½% per month cumulative failure to pay penalty along with about 5% annual interest, but this is a long way from applying those big failure to file penalties. The safest and cheapest thing to do is file a tax return on time. However, if there is no tax due when the return is eventually filed, basically there is no harm and no foul.

Congress recently passed the health care reform bill. Everyone on the planet is aware of that development. However, they have also been busy trying to stimulate the economy via other legislation. On March 18, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act. The main ingredients of the bill allow businesses to claim a new payroll tax exemption and a new hire retention credit. The IRS has designed a new tax form, W-11, for these new credits. It was just posted on the website. The payroll tax exemption gives an employer who hires an unemployed worker after February 3, 2010 and before January 1, 2011 a credit equal to 6.2% of the previously unemployed worker’s wages. This credit totally and directly off-sets the employer’s portion of social security tax. The employee uses the W-11 to declare that he has been unemployed for the 60 days before beginning work for the new employer or has worked less than a total of 40 hours for any employer during that sixty day period.

The second part of the HIRE credit gives a new hire retention credit of $1000 per employer to any business that retains that new hire for at least one year. This credit will be claimed on the 2011 tax return. This can be quite a juicy credit for taxpayers in the market for hiring new employees. By the way, it’s not legal to fire existing employees to hire new qualifying employees.

I’m quite sure we will be hearing more about this credit in the next few months. This is Jerry Coon signing off. I have a few more hours to finish up just a few more returns and keep them off the extension list.

Jerry Coon is an Enrolled Agent. Action Tax Service is located on Northland Drive in Rockford. Contact Jerry at Action’s website at

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