IRS Dead Serious About Tax Deadline
Q: Last year my wife and I filed our tax return electronically, using computer software, and set up a credit card payment to be made two weeks after the tax return filing deadline. In December, I received a letter from the IRS stating that I had never filed a tax return and that my wife and I owed penalties and interest. After many phone conversations, the IRS admitted that we had filed on time, but that it ignored our return because the date we put to take the funds from our credit card was after the due date. Because December was the first I had heard that there was any problem with our return, I protested vociferously. The IRS replied that I needed to send in payment and then worry about who was in the wrong. I paid both the interest and late-filing penalty, but I am wondering what recourse I have at this point.
A: This may come as a nasty shock, but your income taxes are due on the due date. Sometimes you get a day or two leeway when April 15 falls on a weekend, but that’s about it.
Your confusion may come from the fact that a lot of people file for extensions so they can get an extra four months or so to file their returns. The extension is only on the time to file, however. You’re still supposed to estimate and pay your taxes by the due date, which this year was April 16.
It’s not clear from your letter whether your credit card was actually charged. If it wasn’t, that was your first clue that something was wrong. If it was, you may have a bit more ground to stand on when dealing with the IRS, at least in terms of limiting the amount of interest and penalties you owe.
Avoiding the penalty entirely is probably not an option, unless you can prove there was some “reasonable cause” for the late payment, says Los Angeles accountant Phil Holthouse. Simply doing something dumb doesn’t quite rise to that standard.
Depending on how much money is involved, it might be worth hiring a professional tax preparer to help you sort this out. Battling the IRS can be tough, and it can pay to have a good guide.
Splitting It Up
Q: I am planning on divorcing next year, once my youngest child turns 18. During the next 12 months, can I start protecting my finances for the future? For example, we married very young, so all our assets were built up during the marriage. However, I am a long-time employee of my company, so my 401(k) is substantially larger than any retirement account my husband has accumulated. Are there any Web sites or books you could recommend for this stage of the process? I have a while to research this, as my appointment with an attorney isn’t for several months, in case I change my mind.
A: If you live in a community property state such as California, the assets you accumulate during marriage generally belong equally to both you and your husband. It doesn’t matter that you contributed more to your 401(k) than he did to his--typically half of your contributions and half of the account earnings belong to him.
That doesn’t mean you can’t take other steps to secure your financial future. Nolo Press has an excellent book, “Divorce & Money,” by Violet Woodhouse and Victoria Collins. Lorna Wendt, who waged a rather public fight with her executive ex-husband over their divorce settlement, runs a helpful Web site at https://www.equalityinmarriage.com. It may also make sense to chat with a financial planner as well as an attorney. You can find information about choosing a planner at https://www.latimes.com/finplan.
You may find that divorce is a more expensive proposition than you thought. Only you can determine whether it’s the right move, financially and emotionally. But divorce experts will tell you it’s smart to at least begin addressing these issues as soon as you realize that a split may be in your future.
Building Credit
Q: In a recent column, there was a question about a recent college graduate who wanted to buy a car but who faced high interest rates because she had no credit history. Even with her father as a co-signer on the loan, the rates were high. The father wanted to know whether there was a way he could make the loan to her himself and somehow report it to the credit bureaus. The credit bureau representative you quoted said such a personal loan wouldn’t help build the daughter’s credit history and offered some other options, but she left one out. If the father is willing to pledge his certificates of deposit as collateral, chances are good his bank will make the loan to his daughter in her name alone--which would help her establish credit with a reasonable interest rate. As a consumer credit counselor, though, I can’t disagree with your advice that she consider purchasing a less expensive vehicle and using smaller purchases to establish credit.
A: If the father does have CDs at his bank, that can be a good way to save his daughter money and help her establish credit at the same time.
Other readers suggested that the father lend his daughter most of the money but have her take out a small loan at a higher interest rate so she can start building her credit.
A car dealer wrote in to say that many manufacturers offer discounts and standard interest rates to new college graduates and that the dad should ask about those.
The most important thing is that she use credit wisely. That means not applying for or taking on any more debt than is necessary, and paying off most loans as quickly as possible. People who learn smart credit management skills at a young age are usually the ones who end up set for life.
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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at moneytalk@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries.
