Barry & Howard
PBX Tax & Bookkeeping Service
Tax Day looms, and American truckers are no more immune to it than they are happy about it. However, there are options for truckers who may not have enough time in their schedules before April 15 to complete all of the forms required by the government.
This issue, we explore several common scenarios and how to resolve them without having the tax man come to your door.
Can’t file on time?
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 that you are extending the filing of your 2004 income tax return until Aug. 15, 2005. 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 2004 return, it is a good idea to get it paid by April 15 so you can eliminate a late payment penalty. You will have to estimate the amount of tax due. You can include your payment in the same envelope that you use for your extension application.
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 extension application is valid even if the estimated balance due is not paid.
Can’t pay what you owe?
File the return on time or file for an extension to avoid the late filing penalty of 5 percent per month up to 25 percent. If you think you can make the payment within a few months of filing, pay as much as possible with the return or extension. Mail the balance when you receive the IRS notice of tax due.
Paying by credit card is another option; however, a percentage of the tax due is charged as a convenience fee, plus interest at the credit card rate. This can be costly.
You can request an installment agreement. If you file your income tax return on time and owe less 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 in excess of $10,000. Any taxpayer who has an installment agreement for a prior year cannot file Form 9465. In that case, he or she will have to negotiate with the IRS.
Estimated income taxes
April 15 is not only the due date for filing your 2004 tax return, but also the due date of your first estimated tax payment for 2005 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 that they have been charged penalties by the IRS. The point here is that the IRS wants to get its money on a timely basis throughout the year, so it has set up a method of paying estimated taxes four times a year. The due dates are April 15, June 15 and Sept. 15 this year and Jan. 16, 2006.
Haven’t filed a return in years?
Not filing your income tax return can get you into serious trouble. If you don’t file for one year, the odds are you are going to be afraid to file for the next year. And suddenly you haven’t filed for several years because you are afraid to contact the IRS.
Because the IRS is more interested in getting delinquent taxpayers back into the habit of filing the returns and making up for the past filings, non-filers do not have to worry about going to jail. As long as they cooperate and file their tax returns, the IRS is not going to lock them up.
It is best to file the omitted returns prior to the IRS contacting you. The fact that you are not able to pay the back taxes should not prevent you from filing those returns. Once the return has been filed, you may discuss with the IRS your payment options. You may find them surprisingly lenient. You should also try to get the penalties waived if you have a reasonable excuse. The interest, however, cannot be waived except in rare cases.
If the IRS comes after you before you have taken the steps to file the delinquent returns, it is still not too late to work out a solution. The IRS will accept a timetable for filing the back returns. It is advisable to file a current year extension to stop penalties.
Your filing status on your federal tax return is a category that identifies you based on your marital and family situation.
Single – A taxpayer is single if unmarried or separated from a spouse, either by divorce or a separate maintenance decree dated no later than Dec. 31 of the tax year.
Married filing jointly – Taxpayers may file jointly if on the last day of the tax year, they are:
- Married and living together;
- Married and living apart, but not legally separated or divorced;
- Separated under an interlocutory divorce decree; or
- Living in a common-law marriage, if common-law marriage is recognized in the state where they currently reside or in the state where the marriage began.
Married filing separately – Any taxpayer who is married at the end of the year can elect to file separately.
Head of household – All of the following tests must be met:
- Taxpayer is not married at the end of the year;
- Taxpayer paid more than half the cost of keeping up the home;
- Taxpayer is a U.S. citizen or resident during the entire year; and
- The home was the main home for more than half the year for one or more of the following:
- The taxpayer’s child, including stepchild, adopted child or grandchild. The child does not need to be a dependent if the child is unmarried.
- A foster child who is a dependent and a member of the taxpayer’s household for the entire year.
- Another dependent relative who is the taxpayer’s dependent and related to the taxpayer as a:
- Parent or grandparent;
- Sibling, step-sibling or half sibling;
- In-law, including mother-, father-, daughter-, son-, brother- or sister-in-law; or
- Uncle, aunt, nephew or niece (only if blood-related.)
This column was written by Howard Abrams and Barry Horwitz, PBS Tax & Bookkeeping Service. PBS has provided income tax and bookkeeping services to the trucking industry for more than a quarter century. Contributions to this column were made by Shasta May, director of business development for PBS. If you would like further information, please visitpbstax.com on the Internet or call 1-800-697-5153.
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.