Tax Tips
Delinquent on your income taxes?

By Howard Abrams, PBS Tax & Bookkeeping

Q. Ben and Karen, owner-operators, cannot believe they owe so much in taxes. “We have four kids and a home. Why do we owe so much money with all our deductions?”

A. As a self-employed individual, you are taxed on your net self-employment income in addition to your federal income tax.

When figuring your federal income tax obligation or refund, there are many instances where your itemized deductions combined with your exemptions will be close to or exceed your adjusted gross income. This will result in a low or zero taxable income, which relates to owing a small amount or nothing.

However, you still have to pay your self-employment tax. Self-employment tax is Social Security and Medicare tax, otherwise known as FICA, and is 15.3 percent of your net self-employment income.

Employers pay half the 15.3 percent of an employee’s income and the employee pays the other half. Self-employed individuals like yourselves, however, are required to pay the entire 15.3 percent. This system guarantees self-employed individuals the same access to the Social Security and Medicare benefits as employees.

Q. A trucker calls to tell us he cannot get his information together to file his taxes by April 15. He wants to know what he should do.

A. In this situation you should file an “Application for Automatic Extension of Time,” Form 4868. An extension means that you are extending the filing of your federal income tax return until Oct. 15, 2014.

Filing the extension application will eliminate a late filing penalty. However, it is not an extension of time to pay any taxes due.

If you think you are going to owe money on your 2013 return, you should try to get it paid by April 15, so you can eliminate the late payment penalty. A general rule in most cases is to have paid in 100 percent of the total tax from your 2013 tax return.

You will have to estimate the amount of tax due on Form 4868. The IRS can invalidate an extension if tax is understated.

An extension is valid even if the tax estimated on Form 4868 is not paid. However, even with an extension, if you owe taxes and pay the balance when you file your tax return after April 15, you can bet the IRS will hit you with late payment penalties. (Can’t pay by April 15? Keep reading.)

Q. John called and said that his tax return is done, but he cannot pay the balance due. He asked if he should get an extension.

A. As long as the return is done, file it. It has the same effect as filing an extension. They both 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 you will have interest at the credit card rate. That can be costly.

Lastly, you can request an installment agreement. If you file your income tax return on time and do not owe more than $50,000, file Form 9465 “Installment Agreement Request” to request a monthly installment payment plan. Or you can choose to use the IRS online payment agreement, which is available at IRS.gov. 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.

This column is the opinion of the writer and does not necessarily reflect the opinions of Land Line Magazine or its publisher. Please remember that 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.