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.
If you cannot pay tax due
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.
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.
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.