ElderLaw News-The Estate Planning & Elder Law Firm, P.C. — MD, VA, DC
ElderLaw News
ElderLaw News is a weekly e-newsletter that brings you reports of legal developments and other trends of vital interest to seniors and their advocates. This newsletter is brought to you by The Estate Planning & Elder Law Firm, P.C., William S. Fralin, Esq., President., William S. Fralin, Esq., President.

Your Income Tax Return Isn’t Ready? Don’t Panic

With April 15th looming on the horizon, it isn’t just procrastinators who may be feeling the pressure to complete their income tax returns.

The dreaded Form K-1, which is sent to beneficiaries of trusts or estates and to partners and investors in partnerships and LLCs, is a frequent cause of heartburn and anxiety for taxpayers for the simple reason that it may not arrive in the mail until early April. Why so late? The reason is that the K-1 is issued by the trust, estate, partnership or LLC only after it has prepared its own income tax return for the year. Because items of income, deduction and credits flow through these entities to their beneficiaries, partners and members, the entity must gather its own tax information first, prepare its return and then pass out those items of income, deductions and credits as required for the individual taxpayers to pick up on their individual returns. Unfortunately, that process takes time. The end result is that the individual taxpayer cannot complete his or her own income tax return until he or she receives the Form K-1.

So what are you to do? Keep in mind that you are entitled to an extension of time to FILE your income taxes. By April 15, you need to file IRS Form 4868 with the IRS. Filing this form automatically gives you a 6-month extension of time to file your federal income tax return. (It also gives you an automatic 6-month extension of time to file any federal gift tax return – Form 709 – that may be due.) Virginia’s income tax return, Form 760, is due on May 1 and you also get an automatic 6-month extension of time to file without filing any additional paperwork. However, keep in mind that none of these extensions of time to file your returns extends your time to PAY your income, gift or GST tax. Thus, you should make every effort to pay your federal and state income taxes by the original due date (April 15 for federal and May 1 for Virginia).

How do you do that with incomplete information? The best thing you can do is to prepare as much of your return as possible, except for the K-1 items. Based on the partial information available to you, check to see whether you owe income taxes or if you have a refund coming. If you already owe income taxes, be sure that you pay AT LEAST that amount with your extension request (with respect to Virginia you make payments with Form 760IP). If your prior years’ experience with the missing K-1 items is such that you anticipate additional income, you should pay an additional amount that you reasonably expect to cover the income taxes you may owe. In the event that you underestimate the amount that you owe, you will only owe interest on the amount of income tax unpaid by the original due date of the return. In addition, so long as 90% of the income tax ultimately owed is paid by April 15th, you will not be charged a late payment penalty.

What happens if you just ignore the situation and don’t file for an extension of time to file? Even if you file only a few days late, without the extension, you are subject to late filing penalties and, if you owe income tax, to late payment penalties and interest as well. If your return is filed more than 60 days late, the late filing penalty is the smaller of $135 or the amount of the tax due. Otherwise, the late filing penalty is 5% of the amount due for each month the return is not filed. Further, you will owe a late payment penalty at the rate of 1/2 of 1% of the tax not paid for each month until payment is made. Finally, you will owe interest on the amount owed until paid as well. Virginia imposes its own late filing and late payment penalties as well interest which compounds the problem.

Bottom line: don’t throw up your hands in defeat if you think that you may not be able to fully complete your income tax return by April 15th. You can mitigate any potential income tax issues simply by filing for an extension of time to file your return and paying at least 90% of your income tax liability by April 15th. Just don’t forget to complete and file those returns as soon as practical.


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The Estate Planning & Elder Law Firm, P.C.

The Estate Planning & Elder Law Firm, P.C. is an elder law firm. We represent older persons, disabled persons, their families, and their advocates. The practice of elder law includes estate planning, estate and trust administration, powers of attorney, advance medical directives, titling of assets and designations of beneficiaries, guardianships, conservatorships, and public entitlements such as Medicaid, Medicare, Social Security, and SSI, disability planning, income tax planning and preparation, care management, and fiduciary services. For more information about The Estate Planning & Elder Law Firm, P.C., please visit our website at http://www.chroniccareadvocacy.com.

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This newsletter is not intended as a substitute for legal counsel. While every precaution has been taken to make this newsletter accurate, we assume no responsibility for errors, omissions, or damages resulting from the use of the information in this newsletter. The Estate Planning & Elder Law Firm, P.C. thanks the law firm of Hook Law Center for their input to this newsletter.

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