Bonus Tax Forum: The Last Last-Minute Tax Tips Column for '98

If you filed for an extension in April, your time is up on Monday night.
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If you put your 1998 tax return on extension back in April, your extra time is nearly up.

Tax Day for you is Aug. 15. But because that's a Sunday, your deadline is actually midnight on Aug. 16. In other words, you need to get your return in by Monday night at the latest or ask for another extension.

We have a special, mid-week Tax Forum for you procrastinators who haven't yet filed your 1998 returns.

We'll begin with some reader questions on extension issues and finish up with a few filing tips.

As always, send your tax questions to

taxforum@thestreet.com and please include your first and last name.

Snail's Pace for Extension Approvals

What if you filed for an additional extension by certified mail, asked for and received a return receipt, but don't get an answer by Aug. 15? Is that possible? That's my nightmare. -- Arline Brecher

Arline,

As we pointed out in Saturday's

Tax Forum , when you file for an additional extension beyond Aug. 15, you must give the

IRS

a written reason. And the IRS must approve it.

But don't expect to hear from the IRS before late August or early September. At that time you'll get a rejection notice if the IRS doesn't buy your extension request.

In some instances, you may get an approval notice stating that your extension was accepted. But the IRS is not very consistent when it comes to spreading good news. So as the old saw goes, no news is good news.

Buying More Time

You said the IRS will give a taxpayer 10 days to file after it rejects a Form 2688 request for additional time. It seems to me that this is a way to get an automatic extra 10-day extension if one sends in the Form 2688 by midnight on Aug. 16. Am I correct, and is midnight on Aug. 16, 1999, the latest one can send in the Form 2688 before being considered late? -- Greg Drozda

Greg,

Right you are.

If you're not prepared to file your tax return by midnight, Aug. 16, you could take a shot and file

Form 2688

- Application for Additional Extension of Time to File U.S. Individual Income Tax Return

. If approved, you'll get two more months.

If denied, you have 10 days from the date of the notification to mail in your tax return. But at a minimum, you've bought yourself a few more days to get organized.

Did I Miss the Trader Deadline?

I finally have all my records together to file my 1998 return. I have read your articles on qualifying as a trader and it appears that a declaration of some kind had to be made eons ago. Is this true, and if so, when would such a declaration have to be entered for 1999? Our joint income is in the low six figures but I fared poorly trying to position trade in 1998. The losses would certainly offset a significant portion of our otherwise taxable income. I used a separate account for all trades, and all trades were short-term stock and options. The number of trades exceeds 100 per month, on average. I did not keep specific notes on the "why" behind the buy and sells, but the pattern is certainly apparent. I did announce my intention to try position trading to make income as opposed to a buy-and-hold approach. Am I out of luck for 1998? -- Bart Edsall

Bart,

If you believe you qualify for

trader status and you plan to

mark to market your trades on your tax return, then listen up.

The IRS is trying to crack down on traders electing to mark to market only when they have big losses. So it

proposed regulations in January 1999 stating that the mark-to-market election must be made "not later than

two and a half months after the beginning of the taxable year for which the election is made."

In future years, that deadline will be March 15. But for 1998, you had until April 15, 1999, to file

Form 3115

- Application for Change in Accounting Method

, indicating you intended to mark to market your trades.

But who knew? There was very little fanfare about the IRS' proposal.

But there's some good news. If you missed the April 15 deadline, you can still fill out Form 3115 and attach it to your 1998 tax return (assuming you asked for an extension). That'll cover you for both 1998 and 1999.

E-file Away

Don't forget, you can still electronically file your tax return. Most e-filing sites are available until Oct. 15, so check out our

Guide to Online Tax-Filing Sites to determine which one is right for you.

A few reminders: Make sure your name matches your Social Security number -- otherwise you can't electronically transmit your return. You can call your local Social Security office to double check, if need be.

And traders, you can't e-file if you have to report more than 97 trades in 1998. It's an IRS glitch. So use snail mail if you had an active year.

Roth Reminder

At this point, you cannot make an IRA or Roth IRA contribution for 1998. The deadline for that was April 15.

But if you opened a Roth account or made a Roth IRA contribution in 1998, make sure you still meet the adjusted gross income limitation. (See this previous

Tax Forum for how these limitations may affect you.)

If you now realize that you've exceeded those limits, you have until the time you file your tax return to recharacterize that Roth IRA account or contribution, says Kathy Burlison, tax research and training specialist at

H&R Block

. (See a previous

story for tips on recharacterizing your Roth account and contributions.)

More Tax Tips

There are numerous

new items on Form 1040 for 1998. Here are a few highlights:

  • If you still owe money, make your check or money order out to the U.S.Treasury, not the IRS.
  • Don't forget about the new $400 child tax credit (not to be confused with the childcare and dependent care credit for childcare expenses). You can claim a child tax credit of $400 ($500 beginning in 1999) for each dependent child under age 17. The credit phases out if your adjusted gross income is above $110,000 for joint filers, $75,000 for unmarried filers and $55,000 for those married and filing separately. Report this amount on line 43 of your 1040.
  • Two new education credits were made available in 1998: the Hope Scholarship tax credit and the Lifetime Learning credit. The Hope credit maxes out at $1,500 per year and can be used toward tuition expenses paid after Dec. 31, 1997. (Room, board and book expenses don't qualify.) You can only use this credit for the first two years of post-secondary schooling. Expenses paid after June 30, 1998, can qualify for the Lifetime Learning Credit. This credit maxes out at $1,000 per year, but can be taken in unlimited years. Report the amounts of either credit on line 44 of your 1040. For some extra filing tips on these credits, check out this previous Tax Forum.
  • If you sold your home in 1998, you won't pay tax on the first $500,000 gain ($250,000 if you're single) as long as it was your principal residence and you owned it for two of the last five years. Also note that for 1998, you no longer have to file Form 2119 - Sale of your Home. Now, if you have a taxable gain on the sale of your home greater than the $500,000 exclusion, just plop that amount on Schedule D - Capital Gains and Losses.

TSC Tax Forum aims to provide general tax information. It cannot and does not attempt to provide individual tax advice. All readers are urged to consult with an accountant as needed about their individual circumstances.