By Howard Abrams, PBS Tax & Bookkeeping
Q. I have been on the road for the past month and a half, and I have not done anything to put my taxes together. Returns are due by April 15. What can I do?
A. You should file an “Application for Automatic Extension of Time,” Form 4868. An extension means that you are extending the filing of your income tax return until Oct. 15, 2013. 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 2012 return, you should get it paid by April 15, or you can bet the IRS will hit you with late payment penalties even though you have a valid extension.
A general rule in most cases is to make sure to pay 100 percent of the total tax from your 2012 tax return. The IRS can invalidate an extension if tax is understated. An extension is valid even though the estimated balance due is not paid.
If you’re in a refund situation and you file an extension, there will not be any underpayment penalties.
Q. My husband and I just completed our tax return, which shows we owe lots of money. We don’t have the money to pay for it, what can we do?
A. 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.
Lastly, you can request an installment agreement. The IRS will usually accept installment agreements by filing Form 9465 if the unpaid liability is $25,000 but not more than $50,000 and the tax will be paid within six 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 another Form 9465. In that case, you will have to negotiate with the IRS.
Q. My husband and I cannot believe we owe so much in taxes. We have four kids and a home and make a good income. So why do we owe so much?
A. As a self-employed individual you are taxed on your net self-employment income. This is in addition to your federal income tax. There are many instances where your itemized deductions and your number of exemptions combined will be close to or exceed your adjusted gross income. This will result in a low or zero taxable income, which correlates to a low or zero income tax.
Starting again for 2013 your self-employment tax is 15.3 percent of your net self-employment income. There was a 2 percent discount that ended Dec. 31, 2012. Self-employment tax is actually Social Security and Medicare tax, otherwise known as FICA. Employees pay half the required amount based on income, and their employer pays/matches the other half.
Self-employed individuals, however, are required to pay both sides themselves, double what an employee pays on the same earnings. This system guarantees self-employed individuals the same access to benefits as employees. LL
This article is written 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. If you would like further information, please contact PBS at 800-697-5153 or visit their website at pbstax.com.
Please remember 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.