When Filing for an Extension, How Much of My Tax Bill Must I Pay?

Also, how the wash-sale rule affects mutual fund gains and losses.
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If I file an extension form, I have to at least have paid 90% of my estimated tax liability. Does that include the dreaded alternative minimum tax? Also, if I am "eligible" (yippee!) to pay AMT for 1998, but I have already paid more federal taxes than I did in 1997, do I still have to worry about including a check with my extension form to cover 90% of my AMT tax liability for 1998? As a general observation, if I had done my tax return and knew what I had to pay, then why would I need to file an extension? -- Atul Sharan


I think you're confusing the extension rules with the estimated tax rules.

The estimated tax rules require you to pay 100% of 1997's tax or 90% of your 1998 tax bill to avoid being hit with interest and penalties April 15. If you did not meet either of these requirements, you probably should've been making estimated tax payments throughout the year.

If you have decided that you're going to file a

Form 4868 --

Application for Automatic Extension of Time to File U.S. Income Tax Return

for 1998, you must try to calculate your tax bill as accurately as possible. You must include all taxes due when calculating the amount you owe with your extension. That includes the alternative minimum tax and self-employment taxes.

Enter your total tax bill on line 4 of Form 4868. Then on line 5, enter all tax payments you've made throughout the 1998 tax year, including all your withholdings and estimated tax payments. If there is a balance on line 6, then this is the amount you should include with your extension to avoid paying any additional interest and penalties when you file your return in August.

You might want to pay a bit more than you think you owe, just in case you missed something, recommends Bill Fleming of


in Hartford, Conn.

Even if you don't have the money, you can still file for an extension. Just keep in mind you'll owe interest and penalties on the unpaid amount when you finally file your return.

I know April 15 is sneaking up quickly, but this is when errors creep in. People are tired and just rush to get


out. So take some time and try to calculate your final number. You may save yourself some money in the future.

Check out a previous

Tax Forum for more on filing for an extension.

The Wash Sale and Mutual Funds

I buy a mutual fund at $30 and sell it a week later for $29, a $1-per-share loss. I buy the same fund back within 30 days and keep it for the rest of the year. I understand that the loss I incurred cannot be taken because of the wash-sale rule. What if, however, I buy a fund at $30, sell it a week later at $29, buy it back within 30 days at $30 and then sell it a week later at $31? I don't buy this fund again. Can I take the $1-per-share loss against my $1-per-share gain in this scenario since I own no shares of the fund at the end of the year? -- Neal Gladstone


In your first scenario, you are right. You cannot take that $1 loss because you bought the

substantially identical security back within 30 days of the sale. You can add that $1 loss to the basis of your new purchase, though, notes Jim Calvin, an investment management tax partner at

Deloitte & Touche

in Boston and editor-in-chief of the

Journal of Taxation of Investments


In the second scenario, you actually don't have a loss at all. Although you buy the share back at $30, you can add the disallowed $1 loss to the basis, making it $31, notes Calvin. So now if you sell at $31, there is no loss. You broke even.

But let's say you sell a week later at $30. Now you've generated another $1 loss. As long as you do not get back into the position for the next 30 days, you can take that loss.

Just be careful if you're trading near the end of the year. If you sell the shares at a loss on, say, Dec. 30, 1998, you must have stayed out of the security for 30 days to be able to take the loss in 1998. So if you enter the position again, say on Jan. 6, 1999, you would not be able to claim that loss in 1998.

Charge Your Taxes

We pointed out in February that you have the option of

charging your tax bill. Even though we didn't think it was such a great idea, approximately 5,500 taxpayers have done so through April 2.

But what if your tax bill is larger than your credit card's spending limit? Can you charge a portion? Yep, you can, says Steve Johnson, senior vice president of

U.S. Audiotex

, the company handling credit card payments for the

Internal Revenue Service


All you have to do is dial 1-888-2PAY-TAX. Follow the automated instructions and enter the amount you want to pay with your





American Express

cards. (


isn't participating.) Then just file the difference by check with your tax return, says Johnson. You can include a note with your return explaining that you paid part of the bill by credit card, but it is not required. Do not include your credit card number, stresses Johnson. The IRS does not need to know it.

Your Social Security number tracks your payments, so at the end of the day, the IRS will know whether your bill has been paid.

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.