THE TAX ATTIC with Jerry Coon

Avoid penalties, file an extension

Jerry Coon

162-0. I know it’s never been done before and the 2012 Detroit Tigers aren’t going to do it either. They aren’t going to win all of their games this year. They may even have lost a game between the time I wrote this article and the time you are reading it. However, I do think they have a shot at making a run at turning in a very good, if not the best, won-loss record in all of baseball history. The highest won-lost record in American League history was turned in by the 2001 Seattle Mariners at 116-46. I know this is hard to believe, but the best winning percentage of all time came from the 1906 Chicago Cubs with 116 wins and 36 losses. Unfortunately, both of those teams did not win the World Series in their record-setting year. Not necessarily a good precedent.

I believe the best team in all of baseball history was the 1927 New York Yankees. They finished with a record of 105-46 and did win the World Series. That doesn’t surprise me in that the Yankees’ nickname was Murderer’s Row, because they killed pitcher after pitcher. I’m sure that nickname wouldn’t work today. They would be known as something a little less graphic. Even though I’m less than a Yankees fan, I do have to respect a team led by two of the greatest hitters and players in the history of the game, Babe Ruth and Lou Gehrig, and one of the best pitchers of the day, Waite Hoyt. They had seven future Hall of Famers on that team.

What the Tigers have in common this year with that 1927 team is they are led by two of the best hitters and players of today, Miguel Cabrera and Price Fielder, and the best pitcher in the game today, Justin Verlander—possibly three future Hall of Famers. In today’s baseball, they have a stacked team. It’s too early to tell because things happen over the course of 162 games and seven months. Hitters go into slumps. Pitchers get hurt. Managers forget how to manage. But it sure seems like this is the year to be a Tiger fan. Go Tigers!

The tax season ends next Tuesday, the 17th. About 80% of all returns are filed by that date. However, that leaves 20% to be filed after that date. Equating that 20% to a number means that 21 million-plus tax returns will be filed after April 17. Hopefully, all of those 21 million-plus taxpayers have filed an extension and paid any tax that might be due with the extension.

It’s easy to file for an extension. Fill out a Form 4868, sign it and mail it in or file it electronically and it’s a done deal. You have just gained six additional months to file your return. You have eliminated the 5%-per-month failure-to-file-your-return-on-time penalty. What you perhaps have not eliminated is the failure to timely pay all of your tax by the April 17 deadline.

This penalty is assessed if, when you eventually do file your return, there is a balance due on that return. The failure to timely pay penalty is assessed at one-half of one percent. In and of itself, one-half of one percent sounds reasonable. The kicker, however, is that one one-half of one percent accumulates another one-half of one percent each month that your debt is outstanding.

For example, money owed during April is subject to a penalty of one-half percent. Money owed during May is subject to a penalty of one percent. Money owed during June is subject to a penalty of one and one-half percent, etc., etc. In addition, interest is charged on the amount outstanding. Between the penalties and interest, it can add up to diabolical amounts, and over time those penalties and interest can add up to more than the tax. Did you ever see those commercials in which people owe thousands of dollars to the IRS? It’s most likely a fair statement to say the tax may be a smaller amount than the penalties and interest. All of this might be eliminated by filing the return by April 17.

There are valid reasons to file an extension. There are very few valid reasons for not paying any tax due by April 17. Consider the penalties and interest that may be due by not paying the tax due with the extension. Dave Ramsey would say to do just about anything to pay the IRS by April 17. I agree. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns Action Tax Service on Northland Drive in Rockford. Contact Jerry at www.actiontaxservice.com.

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