Taxes: Delaying the Inevitable

As this magazine arrives in your home (assuming the USPS has performed), America's annual "day of infamy" approaches closely. That is to say April 15, which has become a symbol of government's ability—and willingness—to loot the productive capabilities and wealth of people who live under it.

Not surprisingly, most people prefer to wait till the very last minute to send in their federal tax forms—even those who look forward to receiving refunds on the withheld amounts confiscated over the year by their employers for the government. This is a good idea for most people, too, since the millions and millions of last-minute returns filed mean a tremendous jam-up and thus more chance for your tax return to slip through unexamined. Which means generally less harassment, fear, time lost in audits, etc., for those who wait till the last minute.

On the other hand, there are many of us who just can't seem to get around to messing with the damn tax forms during the normal period from January to April 15. What about us? Well, if you're one of these, fear not. You can put off the income tax filing deadline for two more months, automatically and legally. All you need to do is pick up a Form 4868 (Application for Automatic Extension of Time to File US Individual Income Tax Return) at your local post office or IRS office, fill it out, and send it in. Result: you get an automatic extension of the required time to file, till June 15.

Now there's a kind of paradox here. The Form 4868 is not a reprieve from paying the tax you owe. If you're going to owe something (above and beyond what's already been taken through withholding or the payment of quarterly "estimated taxes"), then you're supposed to pay that amount when you send in the form. On the other hand, if you're due a refund, shame on you for letting the government keep your money one second longer than you have to—you should have sent in your return on New Year's.

In any case, the benefit to be gained from using the Form 4868 to get an extension of time to file has to do with avoiding penalties: the law provides for a penalty of five percent of the amount of tax due, for each month the return isn't filed, not to exceed 25 percent extra (of course, if they owe you a refund, this penalty isn't assessed). Willful failure to file a return or pay a tax can be punished with a year in jail or $10,000 fine…or both. In practice, these penalties are rarely assessed unless the IRS is desirous of making an "example" of someone.

Tacked on to either of these penalties is the ubiquitous "interest penalty" for not paying on time. That interest rate was raised to 12 percent last year, but with inflation still running around or over 12 percent, paying such a penalty is like paying off a no-interest loan. So if you want to take advantage of the automatic time extension, here's how to do it:

1. Get the form, jot down your name, address, social security number, etc., in the relevant spaces.

2. Line 1 says, "Total income tax you expect to owe for 1980." Now how the hell do the federal bozos expect you to know how much tax you're going to have to pay if you're putting in the extension because you haven't done the work yet to figure that out? Don't ask anyone who's rational. But here's one way to deal with it: the amount that is withheld from your paychecks is carefully calibrated according to what marital status and how many exemptions you put on the Form W-4 when you started working at your job. That is the amount of tax they expect you to owe. It's a guess, but that's all you've got, at this point. The amount of tax withheld can be found on your W-2 forms (at least one set from each of your 1980 employers). Get the total and stick the number in the box on line 1 of the form. If you think you're going to have to pay more than was withheld (or paid by quarterly installments), they want a check along with the extension form. If you think you're going to owe less than the withheld—meaning you're expecting a refund check—too bad: there doesn't seem to be any provision on the 4868 for such an eventuality. You were maybe expecting even-handed treatment?

3. Go to line 2, where it says "Federal income tax withheld," and stick that amount in the box over on the right. Funny thing: that's the same number you just put above, in the line 1 box. Good.

4. Lines 3 and 4 ask for your "1980 estimated tax payments" (including amounts you may have left with them the year before when you could have gotten a refund) and "Other payments." For most of us, both of these lines will remain blank.

5. Line 5 says to add up the amounts you stuck in the boxes on line 2, 3 and 4. Do that.

6. Line 6 is labeled "Income tax balance due (subtract line 5 from line 1). Pay in full with this form." Well, if you did things right, this calculation should come out to a big, fat zero. Which is the way you want it to come out. You don't owe them anything. Ignore the call for "Total gift tax you expect to owe for 1980" on line 7. If you're rich enough to be owing gift taxes at the end of the year, you've doubtless got an accountant, lawyer, or tax specialist running interference for you.

7. Finally, you (and your spouse, if you're going to be filing a married/joint return) sign the sheet where it calls for your signature and slap a date on it. For the time extension to be good, the envelope carrying it must be postmarked by midnight, April 15.

One last thing: keep a photocopy of the Form 4868 you send off. When you finally get around to filing the income tax return, you staple that on top of your Form 1040. Which is to make sure they don't get any funny ideas about penalizing you for filing your return late.

Timothy Condon is REASON's tax columnist.