2011 Year End Tax Planning Guide for landlords, real estate investors, vacation home owners

Landlords, Real Estate Investors, Rental Property Owners, Vacation Home Owners – it is important  to prioritize end  of the year tax planning. You can keep more money in your pocket by taking advantage of available tax benefits and by tapping into new tax saving opportunities.

Take action now to SAVE on taxes! ACT BEFORE DECEMBER 31, 2011

Follow these top year-end tax tips and strategies for rental property owners.

1. Time Rental Income

Income timing is a time-honored year end plan. In future, tax rates are expected to increase from current historical low rates. If you expect rates to go up it might be better to accelerate income by receiving by January rental income in December. Income timing is not easy and you should consider its impact on various deductions.

2. Accelerate Rental Expenses

There are many different types of expenses that  can be accelerated to reduce rental income for the year. You can purchase goods and services needed for the rental property business, and pay the bills early. Qualifying expenses include advertisements for vacancies, printing, association memberships, business insurance, seminar fees, education courses, cell services, subscriptions, insurance, and utilities. You can also stock up on any office supplies, like printer paper and ink cartridges.

Interest is generally one of the largest deductible expenses – so you can prepay the January mortgage payment to increase your interest expense for the current year.

If you have employees that you pay for your rental business, prepay the withheld Social Security, Medicare, and unemployment taxes.

3.  Harvest Capital Gains or Losses

The low 15 percent federal long term capital gain has been extended through 2012.  Consider tax loss harvesting to offset any current year gains or to accumulate losses to offset future capital gains that would be taxed at higher rates.

4. Employees Health Insurance Credit

You can deduct the cost of health insurance for any employees of your rental business. Take advantage of the health insurance credit, which provides a credit worth up to 35% of premium costs in 2011.

5. Claim Home Office, Workshop, Garage Deduction

If requirements are met, this is one of the best deductions as it enables conversion of non-deductible personal expense into a tax-deductible rental business expense.

Besides deducting expenses for use of space at home for office work, you can deduct space used as work- shop for rental business. If you use your garage to store your tractor to cut grass or to hold furnishings, you can deduct expense for its use.

6. Hire Your Children and Put the Earned Money in IRA

Consider hiring your children to work for your rental business part-time. Deduct their compensation and it is likely you will be moving the income from high tax bracket to lower tax bracket.

In addition, unincorporated businesses do not pay FICA tax on wages paid to children under 18. Put the money earned in IRA account for them. It is a great way to move money into account where it can grow faster through tax deferral.

7. Casualty, Disaster Losses

Losses experienced by rental business due to casualty, disaster or theft may be tax deductible. If your rental business experienced a casualty or disaster loss, use the loss to your benefit. Do not forget to take the casualty and theft losses because of theft, floods, etc.

8. Claim Your Automobile Expenses

Automobile expenses paid exclusively for your rental business can be fully deductible. You can select either the actual expenses method instead of standard mileage if the automobile incurred lot of expenses in 2011.

9. Claim Your Travel and Entertainment Expenses

Deduct travel and entertainment expenses incurred when traveling for your rental business. If you travel overnight for your rental business, deduct your airfare, hotel bills, meals and other expenses.

10. Expense Repair Costs

Remember that repairs are expensed in the year that they occur while improvements are depreciated. Deduct the full cost of repairs that are necessary to keep your property in good working condition like fixing broken windows, gutters, leaks, locks, painting rooms, plastering, etc.

Bonus Tips

1. Increase Rental Property Asset Depreciation Expense

Identify your rental property’s short life assets to depreciate them faster. Assets like air conditioners, refrigerator, carpets, clothes dryer, etc can be depreciated over 5-year life while fences, patio, sidewalk, etc can be depreciated over 15 years. By separating assets and depreciating them separately, deductions are taken sooner.

2. Exclude Rental Income

If you rented your vacation home or home for less than 15 days, you can exclude the rental income on your tax return. In order to avail this tax benefit, the vacation home has to be considered a residence. In order for the property to be considered a residence, you or your family member have to use the home for 15 days at least. You may not be able to deduct any rental expenses but you can deduct interest, property taxes if you itemize deductions.

3. Installment sale

The low 15 percent federal long term capital gain has been extended through 2012.  If you had sold a property on installment sale consider options of triggering a gain on the contract so that you lock into the low 15 percent capital gain rate.

Remember to take action before December 31, 2011!

Everyone’s tax situation is different, and this information should not substitute professional advice. Landlords, Real Estate Investors and Vacation Home Owners should always consult with their tax advisors to consider specific factors that might affect their situation.

Check out these related posts!

• 2010 Year End Tax Tips for Landlords, Real Estate Investors, Vacation Home Owners
• 2010 Vacation Rental Property Tax Deduction Tips for Landlords, Real Estate Investors
• Landlords And Real Estate Owners – IRS Tax Tips On Rental Property

2011 Year End Tax Planning Guide for Real Estate Agents, Professionals and Mortgage Professionals

Real Estate professionals, real estate agents, mortgage professionals and real estate brokers – whether you are a 1099 employee, self-employed, or running your own company, it is important to prioritize tax planning. You can keep more money in your pocket by taking advantage of the tax benefits available to you and by tapping into new tax saving opportunities before Dec 31, 2011.

Congress has been generally frozen on the tax front in 2011. One of the good steps taken by Congress in 2011 is the repeal of the onerous expansion of 1099 reporting rules. One of the earlier legislation, the Small Business Jobs Act of 2011 included many tax incentives that benefit real estate professionals, real estate agents, mortgage professionals and real estate brokers in 2011.  Real estate professionals, real estate agents, mortgage professionals and real estate brokers can take advantage of tax incentives such as 100 percent bonus depreciation, an employee payroll tax holiday, enhanced expensing and other relief for small businesses

Take action now to save on taxes

1. Income timing is a time-honored year end plan. In future, tax rates are expected to increase from current historical low rates. If you are in the top tax bracket, it might be better to accelerate income. However, those in the lower tax brackets should follow the traditional tip of deferring income. Income timing is not easy, and you should be sure to consider its impact on various deductions and any tax credits.

2. Accelerate Expenses: Accelerate expenses to reduce your business’s taxable income. Purchase goods and services needed by the business. Pay early bills like cell services, subscriptions, rent, insurance, utilities, and office supplies. You can also stock up on any office supplies, like printer paper and ink cartridges.

The acceleration or deferral strategy depends on the projected profit and losses for your business and the legal structure (Schedule C, LLC, Partnership, S Corp, C Corp, etc). Check with your tax professional to make sure that you get the best benefit out of this strategy.

3. Equipment Expensing and 50% Depreciation: Thanks to the Small Business Jobs Act of 2010, you can deduct up to $500,000 of equipment purchased in 2011. In addition to first year expensing, write off half the cost of new equipment on top of the regular depreciation allowance. This tax break applies only to equipment purchased in 2011.

4. $8000 Bonus Depreciation on Vehicles: Purchase a new car, light truck, or van before Dec 31, 2011 and if it is used more than 50 percent for business, take an additional $8000 bonus depreciation deduction.

5. Employee Tax Credit: Take advantage of tax credits available for hiring new. For every qualified employee, business owners are exempted from 6.2% Social Security tax, and an additional tax credit of $1000 is available.

6. Health Insurance Credit: Take advantage of the small business health insurance credit, which provides a credit worth up to 35%of a small business premium costs in 2011. The credit phases out gradually for businesses with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full time employees.

7. Contribute to Retirement Plan: Some retirement plan contributions can be made until the day taxes are due, while other require the plan to be set up before the end of the year. Do contribute to your retirement plan, or set one up before the end of the year. Check the contribution limits and deadlines for different types of plans – 401ks, IRAs, Simple, SEP, Roth IRA and Keogh.

8. Carry Back Credits for 5 Years: The Small Business Jobs Act of 2010 allows a five-year carry back of any unused 2011 eligible small business tax credits. These credits may be used to offset Alternative Minimum Tax (AMT) in the prior year. Previously this tax credit was only allowed to be carried back to offset tax paid in the previous year.

9. Convert to Roth IRA: Roth IRAs are unique in that withdrawals from Roth IRAs are not taxed. In 2011, there is a difference from 2010 conversions as you cannot spread out the tax payments due to conversion to Roth IRA. If the taxes will rise in the future for you, it might be worth to pay some taxes now. However for others it may make sense to pay taxes in smaller amounts later.

10. Qualifying dividend tax rate: If you have a C corporation, pay yourself a qualifying dividend so you can take advantage of the lower dividend tax rate that might end in 2011. Do not forget to take advantage of the lower C corporation tax bracket on the first $75,000 of income each year. In some cases, payments from a C Corporation to an owner before the end of the year can be assigned to dividend or a loan

Bonus Tip: Was the real estate business started in 2011?

If so, deduct up to $10,000 of expenses paid before opening of business by taking advantage of increased deduction of startup costs.

Bonus Tip: If your business experienced a loss due to slow economy in 2011, use the loss to your benefit. Do not forget to take these losses – losses on sale of business assets, casualty and theft losses including natural disaster losses, uncollectible debts, and capital losses.

Remember to take action before December 31, 2011!

Everyone’s tax situation is different, and this information should not substitute professional advice. Real estate professionals, real estate agents, mortgage professionals and real estate brokers should always consult with their tax advisors to consider specific factors that might affect their situation.

Check out these related posts!

• 2010 Year End Tax Planning Guide for Real Estate Professionals, Agents, Brokers
• 2011 Tax Planning Guide For Real Estate Agents and Professionals
• 2011 Year End Tax Planning Guide for Property Management Companies and Property Managers

Landlords - Tenants - Tax Tips

Landlords and tenants, if you discover an error after you file your tax return, you can correct it by amending your return.
Here are ten facts from the Internal Revenue Service about amending your federal tax return:

1. When to amend a return

You should file an amended return if your filing status, your dependents, your total   income  or your deductions or credits    were reported incorrectly.

2. When NOT to amend a return In some cases, you do not need to amend your tax return. The IRS usually corrects math errors or requests missing forms – such as W-2s or schedules – when processing an original return. In these instances, do not amend your return.
3. Form to use Use Form 1040X, Amended U.S. Individual Income Tax Return, to amend a previously filed Form 1040, 1040A or 1040EZ. Make sure you check the box for the year of the return you are amending on the Form 1040X. Amended tax returns cannot be filed electronically.
4. Multiple amended returns If you are amending more than one year’s tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS processing center.
5. Form 1040X The Form 1040X has three columns. Column A shows original figures from the original return (if however, the return was previously amended or adjusted by IRS, use the adjusted figures). Column C shows the corrected figures. The difference between Column A and C is shown in Column B. There is an area on the back of the form to explain the specific changes and the reason for the change.
6. Other forms or schedules If the changes involve other schedules or forms, attach them to the Form 1040X.
7. Additional refund If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.
8. Additional tax If you owe additional tax, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges.
9. When to file Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
10. Processing time Normal processing time for amended returns is 8 to 12 weeks.

Following these tips helps to insure that your financial papers are properly filed with the IRS. These tips are applicable to landlords and tenants.

Source: IRS, August 1, 2011

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• Landlords, Property Managers And Tenants – Ten IRS Tips for Last-Minute Filers

Property Management - Sales Information

Property management also includes the sale of property. Sydney property management agent Ian Comyns and independent buyers agent Amanda Segers warn that vendors will lose buyers and money if they don’t avoid four common property sales mistakes.
They say that while the majority of sales mistakes are related to price, there are other small slip-ups that can prove costly when trying to sell a home.
Here are their top four property sales mistakes to avoid.

1. Overpricing
Segers and Comyns both agree that the most common sales mistake that sellers and their agents make is overvaluing the property.
This is often due to inexperienced agents allowing themselves to be influenced by the vendor’s expectations or opinions,  says Comyns.
As the director of inner-west property management firm Exchange Property Sales & Management, Comyns understands the importance of setting the right price at the very beginning.
At Exchange we make sure we’re all on the same page in terms of what’s been selling around your property and for what kind of dollars, he says.
We look at the latest Australian Property Monitors report to get information about the prices homes of a similar size have sold for within a set radius.
Setting a price that buyers find unarguable is the best and easiest way to ensure that a property is sold for what it’s truly worth. Overpricing will always significantly decrease the amount of enquiries about a property.

 
2. Holding out
According to Segers and Comyns, first offer, best offer is often the case when it comes to selling a property.
Comyns offers a recent example to highlight this.
I was talking to some people a few weeks ago who put their property on the market in Zetland with another agent, he says.
In the first week they got an offer but their agent advised them to turn it down and insisted that they go through to auction.
They ended up selling their property at auction for $25,000 less than what they were offered two weeks earlier.
Segers says that agents and their clients should be prepared to sell before auction. In her experience working with buyers every day of the week – if a buyer loses interest, they’ll usually go elsewhere.
If a buyer comes into an auction campaign in its first week, they’ve got to remain interested for another 21 days before the property goes to auction, she says.
That’s enough time for them to change their mind about the property or find value elsewhere.
Comyns says that the lesson for sellers is that if an offer is presented and it’s in line with the expected price, accept it.

3. Agents not knowing what a property is worth
Segers has found that a lot of agents appear disinterested in helping buyers or send them confusing messages about price, which only encourages them to walk.
She says that agents need to send a very clear message about price, and that they should be able to back that price up with recent comparable sales and an identified range of unarguable value so that their buyers have confidence in the whole process.
Comyns says that there are ways to pinpoint what a property should be worth.
At Exchange we print out a list of recent comparable sales that we give to buyers, ordered in price, with the price range we believe the home to be in highlighted for all buyers to see.
This way, buyers can always see what we’re comparing the property to and get a good opinion of the right price, he says.
4. Smell
Property management also includes first impressions or reactions to the property. The final sales mistake is not related to the price of the property don’t underestimate the smell of your home, says Comyns.
He believes that a lot of buyers react in an instinctive or unconscious way to a property and the sense that works the strongest on the unconscious is the smell.
We always encourage our clients to make sure the property is immaculately clean and smells fresh.
And while a bun in the oven or coffee grounds roasting may be a little cliched, making sure the home smells warm and inviting is very important.

Source: Exchange Property Sales and Management, July 9, 2011

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Property Management Companies - Landlords Fire Safety

Property management companies and landlords, wildfire experts and weather specialists have predicted a low-risk, late-starting wildfire season for the Pacific Northwest this summer, but emergency managers caution against complacency. As tall grasses and foliage dry out — the likelihood of brush, range and timber fires increases, and according to FEMA Regional Administrator Ken Murphy, even a mild wildfire season — and there are never any guarantees — begs the question: What if it’s your woods that are burning?
“An informed, responsible and committed public can play a major role in safeguarding property and saving lives. Our firefighters are well-trained, well-resourced and totally dedicated — but they can’t do it alone,” said Murphy. “Planning for disasters means that we must plan for the Whole Community, including people of different ages and those with various access and functional needs.”
Murphy encourages all homeowners to exercise extreme caution with grills, campfires, trash fires and other heat sources, and to embrace the commonsense commitment to pre-disaster wildfire preparedness accepted in more traditionally recognized wildfire-prone areas. “Talk with your local fire department or forestry office,” said Murphy. “Stay abreast of local burn bans and changing weather conditions. Talk with your neighbors. After all, a community is only as safe as its least prepared member.”
Commonsense wildfire preparedness measures include creating a Safety Zone or Defensible Perimeter:

• Establish firebreaks around the perimeter of structures, power poles and property
• Cut back flammable weeds and brush, and remove branches within 15 feet of the ground
• Mow regularly and rake leaves, limbs and twigs
• Landscape with fire resistant plants
• Keep roofs, chimneys and gutters clean
• Install smoke detectors on every floor, and near sleeping areas
• Stack firewood away from your home
• Store combustible materials only in approved containers
• Keep fire tools (shovel, rake, water bucket and ladders) handy
• Clear overgrowth from house numbers and street signs Clear driveways and access roads so fire vehicles have room to maneuver
• Plan and rehearse family evacuation plans
• Don’t overlook adequate insurance coverage.
• Sit down with your insurance agent and make sure that coverage is still adequate and up to date for the hazards you face
• It is also smart to keep important personal documents quickly available should you need to evacuate
• Consider collecting your driver’s license, passport and other identification, birth and marriage certificates, Social Security card, insurance policies, tax records, wills, deed or lease and stocks and bonds
• Also know where your main turn-off switches and valves are for electricity, water and gas

Property management companies and landlords, evacuation kit contents should include:

• Flashlights
• Battery-powered radio and extra batteries
• First Aid Kit Medicines, prescriptions and eyeglasses
• Water
• Change of clothes
• Sleeping bags and pillows

Source: FEMA, July 7, 2011

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Property Management Companies - Landlords Tips On Mold Issues

Property management companies and landlords, with the heavy flooding impacting much of the state, many North Dakota residents will find not only water damage when they return to their homes, but another, more insidious threat: mold.
To stay safe, people returning to flooded residences should take a number of precautions to minimize mold contamination:

• Flooded homes should be thoroughly dried out, a process that may take several days or weeks;
• Wet carpet and padding should be removed and thrown out;
• Porous materials – those that absorb water –  such as drywall, some paneling, fiberglass insulation, cellulose insulation, mattresses, pillows, wallpaper and upholstered furniture should be discarded;
• Drywall and other porous wallboards should be removed at least 12 inches above the visible water line left by the flood. Check for wicking, the upward movement of moisture to higher levels;
• Wall studs, where wallboard has been removed, should be cleaned and allowed to dry completely;
• Floors, concrete or brick walls, countertops, plastic, glass and other non-porous materials should be washed with soap and water, then with a solution of one to two cups of bleach to a gallon of water, and then allowed to dry completely;
• Wear rubber gloves and eye protection when using bleach and make sure area is well ventilated. Don’t mix bleach and ammonia – the fumes are toxic. Consider using an N-95 rated dust mask if heavy concentrations of mold are already growing;

Property management companies and landlords, materials that cannot be effectively cleaned and dried should be placed in sealed plastic bags to prevent the spread of mold spores; and People allergic to mold and people with asthma or other respiratory conditions should not do mold cleanup.Mold spores thrive in continuously wet conditions, and can start to grow within 24 hours after a flood. They can cause allergy symptoms, headaches, bronchitis, asthma attacks, lung irritation and skin rashes. People with asthma or other pulmonary illnesses, compromised immune systems, infants and the elderly are more likely to develop mold-related illnesses.

 
Source: FEMA, July 6, 2011

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Property Management Companies - Landlords Disaster Preparation

Property management companies and landlords, one fourth of all businesses that close because of a disaster never reopen, according to the Institute for Business and Home Safety. But businesses that have a disaster preparedness plan — and implement it — typically have less damage, loss and downtime than those that do not.

 
The recent tornados and flooding in Mississippi affected many businesses. With this in mind, the Mississippi Emergency Management Agency and the Federal Emergency Management Agency urge business owners and managers to increase their chance of surviving this or any other type of event by being ready before disasters happen.
“Local businesses are a cornerstone in a community’s recovery,” said MEMA Director Mike Womack. “When businesses reopen, residents have access to resources and commodities without having to travel great distances and those businesses provide critical sales tax revenue to local governments.”
A business disaster preparedness plan should include measures to protect the organization’s staff, building, data and inventory during a damaging event. It’s critical to plan for continuing operations if the worst happens and the main business premises are unusable due to disaster damage. A sound plan typically includes a pre-identified site where the business can temporarily relocate; means to retrieve data, including employee, customer and vendor records; and a method for operating effectively with a smaller staff of key individuals.
FEMA provides a step-by-step approach to emergency planning, response and recovery for companies of all sizes in its Emergency Management Guide for Business and Industry in the FEMA publication library  FEMA’s Private Sector Division serves as a central point of information and collaboration between federal disaster response/recovery efforts and the private sector — businesses, associations, for-profits, academic institutions and other non-governmental organizations.
The U.S. Small Business Administration also has a preparedness guide for business at “disaster planning guide.” The SBA provides federal disaster assistance for businesses in designated counties in a disaster declaration. SBA disaster loan assistance provides low-interest loans up to $2 million for physical and economic disaster-related losses for businesses of all sizes.
Property management companies and landlords, planning ahead also includes purchasing insurance, but not all perils are covered by typical commercial business policies. Flooding is a risk for many Mississippi businesses, even those not located in most high risk areas, and so business owners are encouraged to consider purchasing flood insurance as a precaution. The source for flood insurance information is the National Flood Insurance Program. Businesses can find insurance agents who sell NFIP policies at www.floodsmart.gov.
Reduce the possibility of your business being out of commission because of a disaster. Plan now!
Source: FEMA, July 6, 2011

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Property Management Companies, Landlords And Tenants - IRS Tax Tips

Property management companies,  landlords and tenants,  the 2011 hurricane season started June 1st, and the Internal Revenue Service encourages individuals and businesses to safeguard themselves against natural disasters by taking a few simple steps.

Create a Backup Set of Records Electronically

Taxpayers should keep a set of backup records in a safe place. The backup should be stored away from the original set.

Keeping a backup set of records –– including, for example, bank statements, tax returns, insurance policies, etc. –– is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet. Even if the original records are provided only on paper, they can be scanned into an electronic format. With documents in electronic form, taxpayers can download them to a backup storage device, like an external hard drive, or burn them to a CD or DVD.

Document Valuables

Another step a taxpayer can take to prepare for disaster is to photograph or videotape the contents of his or her home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.

A photographic record can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area.

Update Emergency Plans

Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

Check on Fiduciary Bonds

Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

Property management companies, landlords and tenants the IRS is ready to help. If disaster strikes, an affected taxpayer can speak with an IRS specialist trained to handle disaster-related issues. Back copies of previously-filed tax returns and all attachments, including Forms W-2, can be requested by filing Form 4506, Request for Copy of Tax Return. Alternatively, transcripts showing most line items on these returns can be ordered by using Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript or Form 4506-T, Request for Transcript of Tax Return.

More Tax Tips

Source: IRS, June 1, 2011

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IRS Information

Landlords, property managers, real estate professionals and tenants each year, the Internal Revenue Service sends millions of letters and notices to taxpayers for a variety of reasons. Here are eight things to know about IRS notices – just in case one shows up in your mailbox.

1. Don’t panic. Many of these letters can be dealt with simply and painlessly.

2. There are a number of reasons why the IRS might send you a notice. Notices may request payment of taxes, notify you of changes to your account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.

3. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.

4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.

5. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.

6. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.

8. It’s important that you keep copies of any correspondence with your records.

Source: IRS, April 13, 2011

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Internal Revenue Service Tax Information

Landlords, property managers, real estate professionals and tenants, when it comes to filing a tax return – or not filing one – the IRS can assess a penalty if you fail to file, fail to pay or both. Here are eight important points the IRS wants you to know about the two different penalties you may face if you do not file or pay timely.

1. If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty.

2. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and explore other payment options in the meantime. The IRS will work with you.

3. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.

4. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

5. If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.

6. If you timely filed a request for an extension of time to file and you paid at least 90 percent of your actual tax liability by the original due date, you will not be faced with a failure-to-pay penalty if the remaining balance is paid by the extended due date.

7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

8. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Source: IRS, April 14, 2011

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