Filing your income taxes

March-April 2020

Howard Abrams

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Q: My husband and I just completed our income taxes, and we show a large balance due to the IRS. We do not have the money to pay for it. What do we do?

A: File the return on time without making a payment (or send it in with a smaller payment) or file for an extension. By doing either, you will avoid the late filing penalty of 5% per month up to 25%.

If you do not pay your taxes by the tax filing deadline, you will still incur at least a penalty of half of 1% of your unpaid taxes for each month or part of a month after the due date, regardless if you have filed your tax return on time. You can pay the balance due by credit card, however, a percentage of the payment is charged as a convenience fee plus interest on the credit card if you carry a balance.

If taxpayers requested an extension of time to file their income tax return by the tax due date (April 15) and paid at least 90% of the taxes they owe, they may not face a failure-to-pay penalty. However, they must pay the remaining balance by the extended due date. Taxpayers will owe interest on any taxes they pay after the April 15 due date. The sooner you pay the IRS, the lower the penalties.

The IRS generally will accept an installment agreement request for an individual if the total unpaid liability is $50,000 or less and the tax will be paid within six years. If $10,000 or less and you pay it off within three years, then the installment agreement is guaranteed as long as all other eligibility requirements have been met. You can set up a payment agreement online at IRS.gov/payments/online-payment-agreement-application. If you choose not to use the online payment agreements, file Form 9465 to set up an installment agreement. If the amount owed is more than $50,000, you would need to also file form 433-F.


Q: I am on the road and cannot get my taxes filed on time. What should 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 for six months until Oct. 15. 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 2019 return, you should 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 110% of the total tax from your 2019 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 though the tax estimated on Form 4868 is not paid. Even with an extension, if you owe taxes and pay the balance when you file your tax return after April 15, the IRS will charge you late payment penalties and interest. There are some reasonable causes for late filing, such as death or illness in your immediate family or falling victim to a natural disaster.


Q: My husband is an owner-operator, and we have four kids and a home. Why do we owe so much money on our taxes with all our deductions?

A: As a self-employed individual, you are taxed on your net self-employment income. This is in addition to your federal income tax. Because of your itemized deductions, in some cases your taxable income puts you in a standard or very low income tax bracket. However, your self-employment tax is (15.3%) of your net self-employment income. Self-employment tax is actually Social Security and Medicare tax, otherwise known as FICA for employees. Employees pay half the required amount based on income and their employer pays or matches the other half. Self-employed individuals, however, are required to pay both sides themselves, double what an employee pays on the same earnings. LL

 

This article has been presented by PBS Tax and 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 us at 800-697-5153. Visit our website at 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.