If your tax
return is not going to be done by April 15, you need to file an
“Application for Automatic Extension of Time,” Form
4868. An extension means you are extending the filing of your
income tax return until Aug. 15, 2002. By filing the extension
application, you will eliminate a late-filing penalty. However,
extensions are not available to pay taxes due. Therefore, if you
think you are going to owe money on your 2001 return, it is a
good idea to get it paid by April 15 so you can eliminate a late-payment
penalty. Your tax preparer can help you estimate the amount of
tax due, even if there is not enough time to get your return done.
If you’re in a refund situation and you file an extension,
there will not be any underpayment penalties.
A reasonable
estimate of tax liability must be entered on Form 4868. The IRS
can invalidate an extension if tax is understated. An extension
application is valid even if the estimated balance due is not
paid with the application.
Abatement
of penalties and interest
Late-payment penalties can be abated if you show reasonable cause.
You would need to show you were unable to pay without severe financial
loss. Submit a written request to your local IRS director. You
must include a signed declaration saying, “Under penalties
of perjury, I declare that I have examined this statement and
accompanying information and, to the best of my knowledge and
belief, they are true, correct and complete.”
This
article has been presented by PBS Tax & Bookkeeping Service,
a company that has been providing income tax and bookkeeping services
to the trucking industry for more than a quarter century. Contributions
to this article were made by Shasta May, Director Business Development
for PBS. If you would like further information, please contact
us at 1-800-697-5153. Visit our web site at www.pbstax.com.
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If
you cannot pay tax due
- Filing
File the return on time or file for an extension to avoid
late-filing penalty of 5 percent per month up to 25 percent.
- Pay late
If payment can be made within a few months of filing,
pay as much as possible with return or extension. Mail
balance with the IRS notice of tax due.
- Pay by credit card
Cost: Percentage of tax as a convenience fee plus interest
at the credit card rate. It can be costly.
- Installment agreement
If you file your income tax return on time and owe not
more than $10,000, you can get a guaranteed installment
agreement by filing Form 9465, “Installment Agreement
Request,” with your tax return in order to set up
a payment plan. The tax must be paid in three years.
The IRS will usually
accept installment agreements on Form 9465 from taxpayers
if the unpaid liability is $25,000 or less and the tax
will be paid within five years. There is, however, no
guarantee of acceptance of an installment agreement
with tax liabilities more than $10,000.
Any taxpayer
who has an installment agreement for a prior year cannot
file Form 9465.
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top tax tips
IRA
contributions
April 15 is the last day to make your IRA contributions
for the tax year 2001. Extensions do not change this fact.
This also applies to Roth IRAs.
Hire
your children
If you are self-employed and your children are under age
18, hire them. You can pay them up to $4,550, deduct it
from your business, and the children will not pay income
tax on it. You must file a W-2 for them, but there are no
Social Security or Medicare taxes on them. If they make
a deductible IRA contribution, they can earn up to $6,550
without paying income taxes.
Social
Security numbers
The IRS will disallow personal exemptions and other tax
benefits (such as the earned income credit) claimed for
any person whose name does not match his/her Social Security
number on a tax return. Women who changed their names when
they married face the loss of their exemptions if they don’t
update information with the Social Security Administration.
Update Social Security information by filing Form SS-5.
Forms can be obtained by mail or from your local Social
Security office.
Estimated
income taxes
April 15 is not only the due date for filing your 2001 tax
return, but also the due date of your first estimated tax
payment for 2002 taxes. Many truckers who do not pay their
estimated income taxes on a quarterly basis and prefer to
wait until the end of the year are often surprised to find
out they have been charged penalties by the IRS. The point
here is the IRS wants to get their money on a timely basis
throughout the year, so they have set up a method of paying
estimated taxes four times a year. If you do not adhere
to this schedule, then you are subject to penalties for
underpayment of your taxes. If you are unable to pay the
full amount set up by your tax preparer, pay as much as
you can instead of not paying at all.
Everyone’s
financial situation is different. This article does not
give and is not intended to give specific accounting and/or
tax advice. Please consult with your own tax or accounting
professional. |
