IN Tax Question

[jedi]

I got a friend that has yet to file his taxes. He bought a house last year and got married so he figured the feds will owe him money and thus has not bothered since he has been busy.

His new bride asked me to look into helping her file the paperwork for them. I agreed and re-installed TurboTax and plugged in the numbers, ease enough. Yup the feds are going to give him back some money as is the state of IL (he works in IL). However he owes IN some money since no tax is taken out of his paycheck for his job in IL and the "credit" in paying IL taxes was not enough this year to offset his IN tax bill.

So this is where I'm confused since I've never filed late or owed the state **AFTER** the deadline.

Here is what the instruction book says for the penalty and interest.

Line 24 – Penalty
You will probably owe a penalty if your tax return is filed after the April
18, 2011, due date and you have an amount due. Penalty is 10 percent
(.10) of the amount due (line 23 minus line 20) or $5, whichever is
greater. Exception: No penalty will be due if you have:
• An extension of time to file;
• Are filing and paying the remaining tax due by the extended filing
due date and
• Have prepaid at least 90 percent of the amount due by April 18,
2011.

Line 25 – Interest
You will owe interest (even if you have a valid extension of time to file)
if your tax return is filed after the April 18, 2011, due date and you have
an amount due. Interest should be figured on the sum of line 23 minus
line 20. Contact the Department at (317) 232-2240 or visit our website
at DOR: Departmental Notices to get Departmental Notice #3 for the
current interest rate.

He owes $247 so for the penalty it is...

$247 x .10 = 24.7 = $25

Now I'm a bit at a loss on the interest. It is a daily interest rate calculation? Weekly? monthly?

From this website I take it it is a daily fee.

Interest Rate

• In addition to the 10 percent upfront penalty, an additional penalty is added to the tax payment if it is not paid immediately. This interest rate changes from year to year and is calculated by adding 2 percent to the state's investment yield. As of February 2011, the interest rate for underpayment of Indiana taxes is 9 percent. The total amount of interest you owe starts from the day the tax is overdue, until the day you actually pay the tax.
  
  

​

Read more: Penalty for Filing Late Taxes in Indiana | eHow.com Penalty for Filing Late Taxes in Indiana | eHow.com

So Using this online tool I am getting an Cumulative Interest fee of $3.19
Daily Interest Calculator


That sounds too low for me. Doing it by hand I get this.

$247 * .09 (9%) = $22.23
Which to me implies that each day the interest is $22.23.
So between 04/19/2011 to say 06/10/2011 is 52 days.
So would I not then do $22.23 x 52 = $1155.96



Any ideas? Thanks!
​

 

[Kitty]

Interest is calculated daily and he most likely is facing penalities he didn't file for the extention. Not getting your taxes in on time BLOWS! I've never had to calculate it myself so I don't know about your figures but my neighbor said the year he blew it he said he owed more in penalities than the actual amount of taxes.

I too work in IL and obviously live in IN. For future reference, he will ALWAYS owe something to IN. I know alot of people in this situation and we laugh every year about our checks to IN. Not one of the 15 or so people I know don't have to cut IN something.

 

[jedi]

Interest is calculated daily and he most likely is facing penalities he didn't file for the extention. Not getting your taxes in on time BLOWS! I've never had to calculate it myself so I don't know about your figures but my neighbor said the year he blew it he said he owed more in penalities than the actual amount of taxes.

I too work in IL and obviously live in IN. For future reference, he will ALWAYS owe something to IN. I know alot of people in this situation and we laugh every year about our checks to IN. Not one of the 15 or so people I know don't have to cut IN something.

Thanks Kitty. So is the penalty also a daily one? If so that is a big penatlty fee. $25 daily for 52 days = $1,300! Which would be in addition to the interest as well. Now I'm more confused. Granted the booklet says you can just send the money due (ie tax) and that the IN Dept. of revenue will calculate the penalty/interest and then send you a bill. But that just adds more time so more $$$ to give them.

 

[kevman65]

To help him in the future, he needs to figure what 5% of his weekly gross is and have it withheld by Illinois. This amount will cover Indiana state and his county income tax. He will get a refund from Illinois and not owe Indiana anything.

Yes it sounds odd and illegal, but it works and neither state said a thing. I asked my accountant about doing it after my first year in Illinois and she said at worst the Illinois refund check would cover what Indiana wanted. Indiana was satisfied with taxes paid in Illinois and I was good to go.

As for the late fees and interest, he's a tapped hole and Indiana is the bolt and tell him to get ready.

 

[jedi]

To help him in the future, he needs to figure what 5% of his weekly gross is and have it withheld by Illinois. This amount will cover Indiana state and his county income tax. He will get a refund from Illinois and not owe Indiana anything.

Yes it sounds odd and illegal, but it works and neither state said a thing. I asked my accountant about doing it after my first year in Illinois and she said at worst the Illinois refund check would cover what Indiana wanted. Indiana was satisfied with taxes paid in Illinois and I was good to go.

As for the late fees and interest, he's a tapped hole and Indiana is the bolt and tell him to get ready.

Thanks we are lucky in LAKE county there is no "county tax" (yet).
He was a resident of IL before he got married but moved to IN in MAR after buying the house. Prior to that he never owed either the feds or IL so I guess he has not realized the mess of late filing since he has never owed a state. See what marriage does. Well if I'm calcualting it right on a dialy basis then it's close to $2400 in penalty and interest all on a $247 he original owed. SNAP!

 

[kevman65]

He may have a small out. WHEN did he move to Indiana? He may not have to pay Indiana until next year for 2011. Look into it.

 

[gunman41mag]

I pay my CPA $40, to do all my taxes

 

[kevman65]

I pay my CPA $40, to do all my taxes

That's fine and dandy until you get into things they aren't familiar with and don't want to investigate. Most CPA's would cost me money every tax time because they know normal business and personal tax codes. But when it comes to working out of jurisdiction and what one can and can not claim they usually don't know squat.

Believe it or not the IRS's site along with the GSA site gives more information than a CPA knows about those things.

 

[jedi]

He may have a small out. WHEN did he move to Indiana? He may not have to pay Indiana until next year for 2011. Look into it.

Nope he became a resident in MAR 2010 so IN considered him a FULL TIME resident. IL considers him a NON-RESIDENT for 2010.

I pay my CPA $40, to do all my taxes

Thanks but that does not help me.

I think my initial post may not be off that much.
I found this calculator on the MO website:
Missouri Department of Revenue

Now granted it's different interest rate but looks like the fee/penalty is not as great as my calculations. I think the best bet is going to be for me to give him the paperwork as if he would have filed 'on time' and have him send the $247 he owes. Then let Indiana send him is "fees for being a ....."

 

[PistolBob]

When did the federal $8000 home buyer credit expire?

 

[mrjarrell]

Your friend probably needs to get in contact with the Indiana taxing people and start the mea culpes and try to get things straightened out for this year. My guess is he'll need to set up a payment schedule to pay off his ever increasing debt. And then ask them what he needs to do for next year. They oughta know. For this year, I'd guess he's screwed.

 

[jedi]

When did the federal $8000 home buyer credit expire?

You must have signed a contract to buy a house by 30 APR 2011 and must have closed by 30 SEP 2011 to qualify. It's $8K MAX credit I think or 10% of the value of the house whichever is loser if memory servers me correct.

Your friend probably needs to get in contact with the Indiana taxing people and start the mea culpes and try to get things straightened out for this year. My guess is he'll need to set up a payment schedule to pay off his ever increasing debt. And then ask them what he needs to do for next year. They oughta know. For this year, I'd guess he's screwed.

Yeah I talk to him and told him to send the IN taxes this week along with the $247 that he originally owed and to be prepared to get a notice from the state saying he owes XYZ more and that it's going to be much more.

The only good thing is that his fed return will help him. As for next year Kitty's advise is best. Increase the amount IL taxes out by about 5% more. This way when it comes time next year to do taxes he will get some more back from IL and at the same time be able to use the "out of state tax credit" to pay off his IN taxes due. So we won't end up having to owe to IN.

 

[Boiled Owl]

The only good thing is that his fed return will help him. As for next year Kitty's advise is best. Increase the amount IL taxes out by about 5% more. This way when it comes time next year to do taxes he will get some more back from IL and at the same time be able to use the "out of state tax credit" to pay off his IN taxes due. So we won't end up having to owe to IN.

Does the money, in this case 5% stay in Illinois? Or does IL pay IN? I'm just wondering as I guess I'd rather see the money go to my home state where I vote.

 

[jedi]

Does the money, in this case 5% stay in Illinois? Or does IL pay IN? I'm just wondering as I guess I'd rather see the money go to my home state where I vote.

I think it states in IL. At one time back in the 90s we (IN) had an agreement with IL in which each would collect the tax and then sent it to the other. However sometime in the early 00s I think IL and IN got pissed at each other, the agreement ended and each told the other to **** off! So we (IN residents that worked in IL) got screwed for a year or two before IN updated it's laws and now gives a credit even though I think they don't get anything from IL.

I do know that IL has agreements with WI, MI, and Kentucky but alas not with us.

Not sure you could "send" the money to IN and not get hosed by IL. You could get your employer to tax takes out for both IN and IL (if they also have an IN presence) but then you are getting DOUBLE taxed. Come tax time IL won't give it all back to you like IN may.

Note this only works if your employer also does IN taxes. Many who work in IL their employer only does IL taxes.

 

[Boiled Owl]

I'm a farmer, this year I'll be harvesting and selling crops from the farms in Illinois, and the one in Indiana which I'd like to move to. For the farm, I file a return by March 1st and pay feds and state what we owe.

I'm wondering how the Illinois vs Ind. crops, sales, and taxes would work?

I probably should start another thread and not hijack this one!