Barry and Howard
PBS Tax & Bookkeeping Service
Common tax return mistakes
Failure to use the most advantageous filing status is a common mistake. Taxpayers who qualify to file as a tax-favorable “head of household” often fail to do so.
Another costly mistake is deducting contributions to Roth IRAs. They are not deductible.
Failure to provide the individual’s identification number or organization providing child care can nullify any child care credits you may have coming.
If you cannot pay tax due
- Filing: File the return on time or file for an extension to avoid a 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 your return or extension. Mail the 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. This can be costly.
- Installment Agreement: If you file your income tax return on time and owe $10,000 or less, 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 above $10,000. Any taxpayer who has an installment agreement for a prior year cannot file Form 9465.
The IRS says it will disallow personal exemptions and other tax benefits claimed for any person whose name doesn’t match his or 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, 2003, is not only the due date for filing your 2002 tax return, but also the due date of your first estimated tax payment for 2003 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 that the IRS wants to get their money on a timely basis throughout the year, and 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.
April 15 is the last day to make your IRA contributions for tax year 2002. Extensions do not change this fact. This applies to regular and Roth IRAs.
Note: The maximum contributions have increased to $3,000 ($3,500 if age 50 or older).
Hire your children
If you are self-employed and your children are under age 18, hire them. You can pay them up to $4,700, 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 $7,700 without paying income taxes.
If you refinanced your mortgage last year, as many did, your tax bill may be a bit higher. Lower interest equates to less interest to deduct on your tax return. But don’t worry: The interest savings from refinancing should be much greater than any extra taxes paid.
Can’t file on time — get an extension
If you’re having trouble getting your information together to file your 2002 income taxes, you can get an extension. If your tax return is not going to be done by April 15, you may choose 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, 2003. By filing the extension application, you will eliminate a late filing penalty. However, it is not an extension of time to pay any taxes due. Therefore, if you think you are going to owe money on your 2002 return, it is a good idea to get it paid by April 15, 2003, 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.
Expecting a refund but haven’t received it? Refund information becomes available six weeks after you file your tax return. Once the standard waiting period has passed, the best way to check refund status is to call Automated Refund Service at 1-800-829-4477, or visit its Web site at www.irs.gov. Have a copy of your tax return handy because you will need to know the first Social Security number shown on your tax return, your filing status and the exact amount of your anticipated refund. LL
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 of 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.
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.