CCH Offers Last-minute Tax Filing Tips

(RIVERWOODS, ILL., March 29, 2001) – Knuckles whiten and stomachs churn as the mid-April tax deadline approaches. Fears of paying too much – or not being able to pay at all – build as taxpayers crunch and recrunch their returns. And always, hovering in the background is fear of the fabled IRS audit. To help taxpayers cope with last-minute fears and uncertainties, here are some last-minute tips from CCH INCORPORATED (CCH), a leading provider of tax and business law information and software, on how to cope as the clock ticks towards midnight, April 16.

Stay Up-To-Date-To Save

"With a little more than two weeks to go until tax time, it may be too late to do any sophisticated tax planning, but it’s not too late to claim what’s coming to you," says CCH Principal Tax Analyst Mark Luscombe, JD, CPA. "It seems that each year brings change in the tax law that can save some taxpayer money, and individual circumstances can also change, making someone eligible to itemize or to claim deductions only available to the self-employed."

Here are some simple things to review:

If buying a house has changed you from a "standard deduction" filer to an itemizer, review expenses like charitable contributions that may now reduce your tax bill. You may never have paid attention to them before, but now they can produce real savings.

If you’ve sold a house you probably have tax-free income. In most cases, single filers can simply exclude up to $250,000 in gains from the sale of a personal residence, and those filing jointly can exclude up to $500,000. There’s no requirement to "roll over" the proceeds into the purchase of a new home, and there are no age limitations. It’s been the law since 1997, but many home sellers are still concerned that they owe tax on their gains.

If you’ve been paying interest on a student loan you may be eligible for a valuable "above the line" deduction – a deduction that reduces your adjusted gross income. Check out IRS publication 970, "Tax Benefits for Higher Education," for details.

If you’re self-employed, tax law changes in recent years have made you also eligible for "above the line" deductions – for one-half your self-employment tax and 60 percent of your health care premiums.

Don’t Invite Undue Attention

To keep a low profile as your forms are being processed and breathe easier as the IRS sends your refund or deposits your check, CCH suggests you make sure to cover the following bases:

Include all Social Security numbers - for yourself, spouse and any dependents. Don’t overlook a spouse receiving alimony or a child receiving child support payments.

Accurately report, or explain, all statements (W-2 forms, 1099 forms, etc.) to the IRS. If the numbers don’t match, your return could be flagged for an audit.

Include all of the necessary forms with your return. That includes W-2s and all the extra tax forms and schedules required by your return. Forms are available in many locations including banks, libraries and IRS offices. Forms also are available from the IRS through fax on demand at 703-368-9694. On the Internet, you can get forms and explanations from the Service’s web site at http://www.irs.gov.

If you know something looks suspicious, explain it up front. A short explanation or informal schedule attached to the return and keyed to the line on the form can avoid audits.

Substantiate before you file. Knowing that you can document your deductions will let you sleep easier. If this is your first time around claiming business expenses, for example, and you haven’t been conscientious about saving paperwork, you might contact suppliers for duplicate statements to verify payment of expenses.

If You Need More Time

If you can pay your likely tax bill but you need more time to complete your return, you can file Form 4868 by April 16 to get an automatic four-month extension. This will give you until August 15 to fill out all your forms, but you have to pay at least 90 percent of your eventual tax bill when you file for the extension, and you will owe interest from April 16 on any additional tax due.

If You Can’t Pay

Do file, but don’t bother asking for an extension if the real problem is that you don’t have the funds to pay the taxes you owe. Instead, you can consider one of three courses:

Let the IRS bill you. The IRS charges fairly reasonable interest and even with the penalty underpayment you may find the terms attractive.
Request an installment payment schedule. File Form 9465, showing how much you’d like to pay on a monthly basis. Be aware, though, that you will be charged a $43 fee if your request is approved and you have to be on the straight and narrow with the IRS until the debt is paid, through proper withholding and estimated tax payments on your future liabilities.
Use plastic. If you’d rather not have Uncle Sam as a creditor, you can charge your tax bill to Master Card, NOVUS/Discover or American Express. You’ll owe a fee in addition to the taxes and any balance will probably incur significant interest charges. But, you may earn frequent flier miles, points, rewards or money back from your card.

If your taxes have piled up to the point that you see no way of paying all of them, you can ask the Service to agree to forgive part of the debt. This is known as an offer-in-compromise. It’s up to you to show that accepting your offer of partial payment would be in the Service’s interest. The IRS is supposed to lighten up on the offer-in-compromise procedure, as required by recent tax legislation, but many experts think that you should use a professional to prepare the offer if at all possible.

Whatever you do, don’t fail to file, CCH says. That just compounds your existing tax problems with a non-filing penalty.

What Are Your Chances?

What are the chances that the IRS will want to have a chat with you about your 2000 return? Based on 1998 figures, the latest available, CCH says your chances of being audited are low if your income is exclusively from wages, interest and capital gains already reported on information returns like W-2s and 1099s.

Only 0.58 percent of returns showing income of $25,000 to under $50,000 and only 0.62 percent of returns in the $50,000 to under $100,000 range received extra IRS scrutiny.
Below $25,000, the chances of audit increased to 0.81 percent for typical 1040A filers – but the extra attention is mainly due to people cheating on the earned income credit and because this income range is where the IRS classifies non-filers.
Above $100,000, chances also increased, but only to 1.66 percent.
You were most likely to be audited as an individual if you had a small business with gross receipts of more than $100,000 reported on your Schedule C – but still, only 3.25 percent of such business owners were asked to explain items on their returns.

About CCH INCORPORATED

CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served four generations of business professionals and their clients. The company produces more than 700 electronic and print products for the tax, legal, securities, insurance, human resources, health care and small business markets. CCH is a wholly owned subsidiary of Wolters Kluwer North America. The CCH web site can be accessed at www.cch.com. The CCH Federal and State Tax group web site can be accessed at http://tax.cchgroup.com.

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