Owner Operators - Tax Tips
Income Tax Filing Options
NOTE: Contributions to Traditional & Roth IRA's must be made by April 16.
CAN'T FILE ON TIME? GET AN EXTENSION
If your tax return is not going to be done by April 16, you can 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. 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. The extension application is valid even if the estimated balance due is not paid.
CAN'T PAY YOUR TAXES?
File the return on time or file for an extension to avoid late filing penalty of 5 to 25 percent per month. Try to 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, although, 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 $10,000, you can get a guaranteed installment agreement by filing Form 9465, "Installment Agreement Request," with your tax return. The tax must be paid within 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 above $10,000. 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.
HAVEN'T FILED A TAX RETURN IN SEVERAL YEARS?
You can get you into serious trouble by not filing your income tax return. If you don't file for one year, the odds are that you will be afraid to file for the following year. Before you know it, you haven't filed for three, four, or five 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 their 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 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 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 returns.