LANDLINE

ARTICLE0407LL

MARCH/APRIL 2007

 

    INCOME TAX FILING OPTIONS

                 

 

 

 

CAN’T FILE ON TIME – GET AN EXTENSION

 

If your tax return is not going to be filed by April 16, 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 income tax return until October 15, 2007.  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 2006 return, it is a good idea to get it paid by April 16, 2007, so you can eliminate a 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.  A reasonable estimate of tax liability must be entered on the Form 4868.  If you owe taxes and pay the balance when you file your tax return after April 16 even though you have a valid extension, you can bet the IRS will hit you with late payment penalties.  They have stepped up this procedure.

 

CAN’T PAY YOUR TAXES?

 

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 not 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.

 

HAVEN’T FILED A TAX RETURN IN YEARS?

 

It seems that at tax time, prior clients come out of the woodwork to file delinquent tax returns.  They don’t come in August, September, October, November or December.  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 because you are afraid to contact the IRS.  Since the IRS is more interested in getting the delinquent taxpayers back in 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 you up. 

 

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 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 tax returns.

 

ESTIMATED INCOME TAXES

 

April 16 is not only the due date for filing your 2006 tax return, but also the due date of your first estimated tax payment for 2007 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 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 16, June 15, September 17, and January 15, 2008.  The IRS has, in the past, delayed negotiating installment agreements for back taxes until the taxpayer is current in filing their income tax return and estimated taxes.

 

 

TAX NOTE - IRS AUDITING MORE BROADLY, LESS DEEPLY

 

The IRS is adopting a new philosophy in that they would rather collect 80% of available tax in an audit rather than concentrating on getting 100% which is more time consuming.  The IRS claims it can collect 80% of tax recoverable in 20% of the time it would take to get 100%.  Therefore, it is more economical collecting 80% while using the time saved to conduct more audits.

Two extra benefits for the IRS: 

            (1)  Less intensive audits avoid annoying taxpayers, and

            (2) The larger number of audits reduces tax cheating due to increased risk of     

                  being audited.

 

 

TAX TIPS

 

April 16 is the last day to make an IRA contribution (traditional or Roth).  But your business can still set up a Self Employed Retirement Plan (SEP IRA) for 2006 until the extended due date (October 15 for individuals and partnerships, September 17 for S-corporations) provided it has no other pension plan.  A SEP IRA owner may contribute and deduct up to 25% of compensation up to $44,000 for 2006. Note: You do not have to wait until 2008 to start making 2007 IRA contributions.

 

 

Important: If you move, remember to notify the IRS by filing Form 8822, Change of Address. Go to www.irs.gov to download form.

 

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.  Contributions to this article were made by Shasta May, Director Business Development for PBS.  If you would like further information, please contact us at 800-697-5153.  Visit our Web Site at http://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.”