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Show The Bottom Line ( ' : Tax extensions, make sener I By KENNETH R. ROSE Editor's note: Bottom Line au- thor Kenneth J. Rose is the owner of Rose and Associates, a small rf: business tax consulting, and finan- L cial planning firm in Bountiful. 2- Where filing income tax returns is concerned, "not putting off until tomorrow what you can put off for g? four months" often makes good & business sense! With the advent of the automatic extension, taxpayers and tax preparers need no longer ., struggle to have their returns on their way to the Internal Revenue Service by the "ides of April." The extension allows taxpayers to delay mailing their 1988 tax returns until , ; August 15, 1989;: and those who ; posmone filing may take advantage , of some tax benefits that the early birds overlook. To receive an extension, file IRS i Form 4868, "Application for Au- tomatic Extension of Time for Fil- ing U.S. Individual Income Tax Re-1 Re-1 turn," with the IRS on or before April 17. The extension form must . I include a projection of tax liability and a statement of the actual amount of estimated payments and tax withholding that has been made to offset the current tax liability. The automatic extension does not extend the time in which to pay taxes. If the projected tax liability is more than the estimated payments, you should enclose a check or money order (showing your Social Security number for identification) for the balance with the extension request, but if your estimated payments pay-ments and taxes withheld equal at least 90 percent of your tax liability, no penalty will be imposed for not making a tax payment with the extension ex-tension request. There will, however, be an interest charge oh the late payment of tax. Also note '"that" &n .extension " of filing your 1988 tax return does not extend the period in which to make your 1989 first quarter estimated tax payment, due on April 17. An extension will also not extend the time to make contributions to a qualified Individual Retirement Arrangement Ar-rangement (IRA). Contributions to these accounts must be made by April 17. Taxpayers who are eager to file so they can receive a refund may be especially hesitant to file for an extension, ex-tension, and and others may well question why they should bother if it does not give them more time to make tax payments. The simple answer an-swer is that delayed filing affords some special tax elections and tax planning moves that are not otherwise other-wise available. : . An extension request which allows al-lows small business owners to take advantage of depreciation elections is an important tax planning tool. 1 Many businesses have found the Modified Accelerated Cost Recovery Re-covery System (MACRS) which allows al-lows rapid write-off of fixed assets to be beneficial, but straightline de- ' preciation -' using the ' regular Ire-;,; covery period or certain specified ,r longer periods is also permitted. ' In addition, it is possible to elect out of MACRS depreciation if a "units of production" method is to be employed. Or, business owners may elect the Capital Expenditure Deduction (CED) which allows a direct write-off of $10,000 of fixed assets in the current year, rather than depreciating such costs, to save taxes and decrease record-keeping requirements. Once a return has been filed, however, it cannot be amended for these types of elections, nor can such an election be made on late returns. re-turns. The beauty of the automatic extension is that it allows business owners an extra four months to evaluate eva-luate and implement the depreciation deprecia-tion election best suited to their needs. Other tax features that the taxpayer tax-payer might be able to examine more closely by having extra time, would be the election to treat a sale of an asset as ah installment sale or the election of the special ten-year averaging method for lump sum dis-' ' tributidns: They each could be very . ' advantageous in Wrtairi , circumstances, circum-stances, but could be very detrimental detrimen-tal in others. . ' ? Take a close look at your individual indivi-dual situation. If you won't have time to file an accurate tax return by the due date, file an extension. It will give you the extra time you need and could save you a lot of money in taxes. |