• Make sure you’ve actually filed a 2008 income tax extension: many taxpayers end up owing extra fees because they didn’t complete their 2008 tax extension form filing.

• Make sure you’re aware of the penalties: even if you filed a 2008 tax extension, you’re still going to owe money when you pay late. Fortunately, the penalties for paying late are much lower than the penalties for filing late. You’ll owe .5% of your total bill for each month you’re late. You’ll also have to pay 5% per year in interest—steep, but much lower than the 5% per month you could owe if you file late, too.

• Don’t forget about state taxes: If you’ve filed your federal tax extension form, but not your California income tax extension, you could be on the hook for fines from the state. If you’re in the military, tax extensions can get even more complicated, because you may serve in different states—but it’s fairly simple to sort out, since the paperwork is all available.

• Gather your tax forms: you don’t want to come up short when it’s time to actually complete the filing. If you’re unable to get the forms, make some plans in advance: you’ll have to estimate your income and withholdings, and the IRS may end up questioning the estimates. It can get fairly complicated, so it’s best to avoid the trouble and track down your forms.

• Double- and triple-check your work: the IRS is always picky about errors—but if you filed a 2008 tax extension, they’re going to pay extra attention. You might know how long the tax extension does last, but you don’t know how long those errors will stick around. This isn’t because they want to pick on late filers, or even because people who file late make more errors. The reason is simple: they’re less busy when it’s not tax season, so they have more time to carefully examine your return. So spend some extra time reading over your 1040; extension filing won’t help you there.

The good news? Although it used to be difficult, filing after the deadline once you file a 2008 tax extension form has never been easier. You can efile (an electronic file extension) online, and have your credits automatically calculated. It’s faster and simpler than a traditional return, and could help you get even more money back! And even if you expect to owe money, you don’t have to pay until you’ve completed the filing (so you can wait until you know how much you’re saving—it amounts to getting to file for free!)

The Federal earned income tax credit gives money to low-income workers, to compensate them for payroll taxes. Since there was already a payroll tax cut in an earlier stimulus plan, why not just boost the Federal earned income tax credit?

There are a few reasons the earned income tax credit hasn’t been expanded:

• It isn’t targeted. The earned income tax credit doesn’t necessarily help build new infrastructure, boost home prices, or send people back to school. It may go straight into savings, which is not something stimulus plans generally try to do.
• It helps people who are still employed. With the unemployment rate likely to hit 10%, fewer and fewer people will be eligible for a tax credit that pays back payroll taxes. Instead of giving more money to people who are still working, the current stimulus plan tries to do two things: create new jobs, and reduce competition for existing jobs by sending people back to school.
• It’s harder to notice. A one-time credit giving back money that was already paid into the tax system is hard to notice. It sounds like an accounting gimmick, not a benefit (and maybe it is). But, for good reasons or for bad, it’s easier to notice having extra money if it shows up in a roundabout way, so the federal earned income tax credit doesn’t get as much attention.

The good news? The Federal earned income tax credit is one of the most common tax credits available to filers. Find out if you’re eligible!

Via Phillip on Flickr.

Getting information from Swiss banks: even when they aren’t in Switzerland, these banks are feeling the heat. It may be the single best way to make up for a weak 2008 tax return: collect unpaid taxes on money earned during the good years, instead!

Legalizing in order to tax: The Washington Post recently published an editorial calling for legalizing and taxing drugs. For a paper that values its connections to the political mainstream, that’s a significant step. Among other things, they argue that it’s a dollars-and-cents issue:

Having fought the war on drugs, we know that ending the drug war is the right thing to do — for all of us, especially taxpayers. While the financial benefits of drug legalization are not our main concern, they are substantial. In a July referendum, Oakland, Calif., voted to tax drug sales by a 4-to-1 margin. Harvard economist Jeffrey Miron estimates that ending the drug war would save $44 billion annually, with taxes bringing in an additional $33 billion.

Finding new things to illegalize and fine: High-Frequency Trading is a fiendishly complex subject which is only partly understood, even by PhDs and industry experts. Fortunately, the qualifications for having an opinion on it are a bit lower. One new proposal is a tax on every trade as a way to partly ban high-frequency trading.

So that’s the plan: tax money overseas, legalize drugs, and create a fine for something nobody really understands.

How much of this will really happen? The answer is, likely, almost none of it: overseas banks have always had to assume that there could be a crackdown, so they’ve taken precautions to make it hard to get money out. While drug legalization is getting more popular, it’s hard to beat the status quo. And a trading tax is not likely to get passed any time soon—if Wall Streeters are already paying income taxes, why kill the golden goose by cutting their incomes in order to tax them a different way?