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ARTICLE0409LL

MARCH/APRIL 2009

 

    INCOME TAX FILING OPTIONS

                 

 

 

 

 

I CANNOT GATHER ALL MY PAPERWORK TO FILE MY TAXES BY APRIL 15. WHAT SHOULD I DO?

 

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 October 15, 2009.  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 2008 return, you should get it paid by April 15, 2009, so you can eliminate the late payment penalty.  You will have to estimate the amount of tax due.  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. If you owe taxes and pay the balance when you file your tax return after April 15 even though you have a valid extension, you can bet the IRS will hit you with late payment penalties. 

 

MY TAX RETURN IS READY TO BE FILED BUT I DO NOT HAVE THE MONEY TO PAY THE TAXES DUE. CAN I SET UP A PAYMENT PLAN?

 

File the return on time or file for an extension to avoid a late filing penalty of 5% per month up to 25%.  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.  And lastly, you can request an installment agreement.  If you file your income tax return on time and owe no more than $25,000, you can generally get an 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 within five years.  Any taxpayer who has an installment agreement for a prior year cannot file Form 9465.  In that case, they will have to negotiate with the IRS.  If your liability is $10,000 or less, the 9465 request is guaranteed if you can pay your debt off within three years.

 

WHY DO I HAVE TO PAY A LARGE INCOME TAX WHEN I HAVE 4 KIDS AND MORTGAGE INTEREST TO DEDUCT?

 

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 relates to low or zero income tax. However, your self-employment tax is fifteen point three percent (15.3%) of your net self employment income. 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.

 

HAVEN’T FILED A TAX RETURN IN YEARS?

 

It seems that at tax time, non filers get concerned about filing for past years. They come now because of the income tax season buzz.  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 3, 4, or 5 years. Since the IRS is more interested in getting the delinquent taxpayers back in the system 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. However, if you owe taxes, you will have to work it out with the IRS. 

 

It is best to file the delinquent 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 you payment options.  You may find them surprisingly lenient.  You should also try to get the penalties waived if you have a reasonable or hardship cause.  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 tax returns.

 

TAX TIPS

 

April 15 is the last day to make an IRA contribution (traditional or Roth).  But if you are self-employed, you can still set up a Self Employed Retirement Plan (SEP IRA) for 2008 and fund it by the extended due date (October 15 for individuals and September 15 for partnerships) provided you have no other pension plans.  A SEP IRA owner may contribute and deduct up to 25% of compensation up to $46,000 for 2008. If you have employees, they must be included. The S-Corporation owner/employees can also set-up an (SEP IRA) and fund it by the September 15^th due date.

 

WHY DO I PAY A PENALTY WHEN I PAY ALL MY INCOME TAXES DUE WITH MY TAX RETURN?

 

Many truckers who do not pay their estimated income taxes on a quarterly basis and instead wait until they file their return are often surprised to find out that they have been charged penalties and interest 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.  The due dates are April 15, June 15, September 15, and January 15. 

 

TAX TIP

 

Remember, if you move, notify the IRS.

 

This article has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. If you would like further information, please contact us at 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.”