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When It Comes to Taxes, Timing Can Be EverythingUpdated to reflect January 24 IRS notice on April 17 filing date(RIVERWOODS, ILL., January 2007) – What’s the day for filing your 2006 tax return? If you automatically thought “April 15,” check a calendar, advises CCH, a Wolters Kluwer business and a leading provider of tax and accounting law information, software and services (CCHGroup.com). April 15 falls on a Sunday this year, so under normal IRS rules, most people would have until April 16 to put their tax return in the mail or submit it electronically. “When a federal filing date falls on a weekend or national holiday, the filing time is extended to the next business day,” notes Mildred Carter, JD, CCH senior federal tax analyst. If you live in Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont or the District of Columbia, you may have known for some time that you have yet one more day to file your federal taxes this year. Your federal tax returns are processed at the IRS Service Center in Andover, Mass., and the workers there will be celebrating Patriot’s day, a state holiday, on April 16, giving taxpayers who use the center until April 17 to file their 2006 returns. But this year, the entire nation gets a bonus because of a local holiday. Emancipation Day, April 16, was recently made a legal holiday in the District of Columbia, so the IRS has decided to extend everyone's tax deadline until April 17. But even though you have an extra two days in April to file your federal return this year, if you ask for an automatic six-month extension, your return will be due on Monday, October 15, six months after April 15. File it on October 16 or 17 and you’ll incur a late filing fee. “The IRS doesn’t reset the clock for extensions when April 15 falls on a weekend,” Carter said. Timing Can Be ArbitraryTiming is critical – and often arbitrary – when it comes to taxes. April 15 hasn’t always been the deadline for filing federal income tax returns. The very first returns were due on March 1, 1914, following passage of the modern income tax in October of the previous year. But the first day of March didn’t stay “tax day” for long. With U.S. entry into World War I, federal budgets ballooned and to finance the larger expenditures, rates were raised and exemptions were lowered. To give an expanded body of filers time to adjust, the due date was moved to March 15 for 1918 – and stayed there for the next 37 years, giving modern meaning to the warning “Beware the ides of March.” Then, in 1954, Congress rewrote the Internal Revenue Code from beginning to end, making some 3,000 changes to existing law. It also gave taxpayers – and the IRS – an extra month to digest all the changes, establishing April 15, 1955 as the day of reckoning for federal tax liabilities. Date-based RulesThe tax laws are full of date-based rules. The fugitive instant between December 31 and January 1 as the second hand sweeps past midnight on New Year’s Eve is utterly decisive for dozens of items on a tax return – whether you can file as a married couple, claim a newborn child as a dependent or take a deduction for an expense. If you and your spouse tied the knot at 11:59:59 on the last day of December, you can count yourselves as married for the entire year. If you divorce at the end of December, the fact that you were married for almost a full year doesn’t count – you can’t file a joint return or take advantage of any of the other benefits joint filers enjoy. Holding a stock for “more than 12 months” allows you to claim capital gains treatment when you sell it; hold it for 12 months or less and any profit from its sale counts as ordinary income. But the tax code doesn’t stop there. It adds special rules for calculating the “holding period.” To figure how long a stock or other asset is held, you begin counting one day after the date on which it you buy it. The same date of each following month counts as the beginning of a new month, no matter how many days are in each month. For example, if you buy a stock on March 1, 2005, you start counting your holding period on March 2, 2005. The date you sell is included in the holding period. So if you sell the stock on March 1, 2006, you’ve held it for only 12 months and have to treat any gain as ordinary income. March 2, 2006, is the start of the thirteenth month of your holding period. Sell the stock on that day or at some future time and you can take advantage of long-term capital gains rates. “A lot of people might figure that selling a stock one year after you bought it would qualify you for capital gains treatment,” Carter noted. “It’s knowing details like whether it’s ‘12 months’ or ‘more than 12 months’ and just how you count a ‘month’ that makes good tax advisors worth what they charge.” When Are Taxes Really Paid?A married couple ran into timing trouble when they asked for a refund of previously paid taxes. They had received a four-month extension to file their 1999 taxes, from April 17, 2000 to August 15. They actually filed their return on October 30, 2000, showing that they owed $10,378. They met this liability by applying $8,543 that had been withheld from 1999 paychecks, $5,000 that had been submitted with the extension request back in April and a total of $1,667 in estimated tax credits from an earlier period. But in July, 2003, they took a second look at their 1999 taxes and decided that they didn’t owe anything – in fact, they believed they had a loss that could be carried forward to later years – so they applied for a refund on October 17, 2003. Then they ran up against a timing rule. It stated that “the amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to three years plus the period of any extension of time for filing the return.” But when had they “paid” their tax? They argued that they paid it when they finally filed their return, at the end of October, 2000, and directed that their withholding and other amounts previously paid should be credited against their 1999 liability. But the Supreme Court had ruled earlier that amounts withheld from your wages are “paid” to the IRS on the due date of the following year without extensions, no matter when you actually file your return. The couple’s time to ask for a refund of that money ran out in August, 2003. States Have Additional Deadlines, RulesWhile most people only have to keep a few dates in mind for managing their federal taxes, the situation is more complicated when state filing deadlines are factored in, especially for businesses operating in many states. Although most states follow the federal pattern for income taxes, five do not. Hawaii gives its taxpayers until April 20 to file their state income tax returns; taxpayers in Delaware and Iowa have until April 30; Virginia’s deadline is May 1; and Louisiana’s filing date is May 15. Most states allow a six-month extension, and some automatically grant one when a federal extension is filed, while others don’t. What’s more, states have their own unique legal holidays, such as Pioneer Day in Utah, Arbor Day in Nebraska and Mardi Gras in Louisiana, which can also affect the day on which taxes are actually due. Businesses must also grapple with federal and state deadlines for payroll taxes, as well as state sales taxes and property taxes. To cope with it all, tax professionals rely on tax calendars – printed, electronic, or built into their software. “They know that the best-prepared return loses much of its value if it’s not filed on time,” Carter noted. Three Extra Days?Meanwhile, the people who are pleased with the two days past the 15 th that Patriot’s Day affords them to file this year, have something even better looming in the future. In 2017, April 15 will fall on a Saturday, so most filers will have until Monday, April 17 to submit their returns, while users of the Andover IRS Center will have until April 18 before their filings are considered late. “That assumes, of course, that we’re still mailing paper returns to regional centers ten years from now,” Carter noted. About CCH, a Wolters Kluwer businessCCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax and accounting law information, software and services. It has served tax, accounting and business professionals and their clients since 1913. Among its market-leading products are The ProSystem fx® Office, CCH® Tax Research Network™, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill. Wolters Kluwer is a leading global information services and publishing company. The company provides products and services for professionals in the health, tax, accounting, corporate, financial services, legal and regulatory, and education sectors. Wolters Kluwer has annual revenues (2005) of €3.4 billion, employs approximately 18,400 people worldwide and maintains operations across Europe, North America, and Asia Pacific. Wolters Kluwer is headquartered in Amsterdam, the Netherlands. Its shares are quoted on the Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. For more information, visit www.wolterskluwer.com. -- ### -- nb-07-13
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