- The Washington Times - Tuesday, April 4, 2006

Here are some last-minute ideas to reduce taxes and relieve the stress of filing: Don’t procrastinate. Resist the temptation to put off your taxes until the very last minute. Your haste to meet the filing deadline may cause you to overlook potential sources of tax savings and probably will increase your risk of making an error.

• Don’t panic if you can’t pay. Unable to immediately pay the taxes you owe? Apply for an IRS installment agreement that allows you to suggest your own monthly payment amount and due date, and get a reduced late-payment penalty rate. Do the paperwork on Form 9465, found at www.irs.gov/pub/irs-pdf/f9465.pdf. There is a setup fee of $43 for using Form 9465 that the Internal Revenue Service wraps into the agreement.

• Request an extension of time to file, but pay on time. If the clock runs out, you can get an automatic six-month extension of time to file to Oct. 16 (the 15th falls on a Sunday). Previously, the extension period was four months. The extension itself doesn’t give you more time to pay any taxes due. You owe interest on any amount not paid by the deadline of April 17, (the 15th falls on a Saturday), plus a late-payment penalty if you haven’t paid at least 90 percent of your total tax by that date. To apply for an extension, submit IRS Form 4868, available at www.irs.gov/pub/irs-pdf/f4868.pdf.

• State and local income or sales taxes: Taxpayers who itemize on Schedule A can claim a state and local tax deduction for either income or sales taxes, but not both. Besides state and local income tax amounts shown on W-2 forms, remember to count all estimated tax payments and any prior years’ payments to cover shortfalls as long as they were paid during tax year 2005. What if you choose to deduct sales taxes instead? You may deduct actual expenses or use the optional tables provide by the IRS to determine your deduction amount, relieving you of the need to save receipts. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate.

• Real estate taxes: Schedule A deductions for real estate taxes usually mean any state, local or foreign taxes on real property. But a restriction applies when a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account. The allowable deduction is the amount actually paid during the year to the taxing authorities. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.

• Personal property taxes: Claim Schedule A deductions for property taxes when they are based on the value of personal property, such as a boat or car. To qualify for the deduction, the tax must be charged to you on a yearly basis. So say sayonara to any write-off if your state imposes a flat fee or a size- or weight-based amount to register your car.

• Credit for foreign taxes paid: Simplified rules help investors who stash funds in mutual funds that invest internationally and pay taxes to foreign governments. If you hold shares in taxable accounts, meaning other than in such tax-deferred arrangements as traditional individual retirement accounts, you can claim an often-overlooked credit for those taxes. Provided they are less than $300 ($600 for joint filers), you are relieved of the need to complete numbingly complex Form 1116. Just indicate the credit amount on Line 47 of Form 1040.

To send comments to Julian Block, go to www.julianblocktaxexpert.com.

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