You ever tell yourself that one of these days you’re going to fix that hole in the roof? The one that isn’t really that bad. The one that really only leaks when the heavens open and walls of water crash down on us. And the wet season gets closer and closer and you’re fixing to do it maybe tomorrow, maybe next week. Then you get up one morning and the sky is nothing but black clouds and lightning, and you feel the first drops of rain. Really, really, big drops.
That would feel about the same as realizing it’s just a few days to the April 15 tax-filing deadline and you haven’t done them yet, wouldn’t it?
What now? Two things. 1) Don’t panic. 2) Do something.
Don’t worry, you can get your tax return in before the deadline. Just like you have time to do those basic roof repairs.
“We file every quarter,” says Paula Starnato who, with husband Paul, is an owner-operator out of Seguin, Texas, “and we pay every quarter. We get them in on time, but it seems we pay more every quarter, and we pay more every year. We do what we have to, but it’s not a fair system.”
Todd Amen is president of American Truck Tax, a company that provides tax, business and accounting services to more than 8,000 owner-operators. By Feb. 14th only about 500 drivers had provided him with their complete information.
“I’d guess about half will get filed by April 15, and with the bulk of the others we’ll file extensions. There’ll be a few drivers who never get around to it,” he says.
Among Amen’s company services is one that is simplicity itself: “We send every driver a vinyl envelope every month and tell them to send us every receipt for that month. At the end of the year we have a huge head start on getting their taxes done.” His advice to drivers is to keep 12 envelopes and stuff them with receipts. “That will make things easier if you don’t get around to it until April. The alternative is usually one box with an incredible jumble of paperwork that will make you throw up your hands and surrender.”
For owner-operators the envelopes make quarterly tax payments easier.
O.K., so where to start? Believe it or not the IRS has a surprisingly user-friendly website – www.IRS.gov. It can direct you to local phone line help, show you how to download tax forms, and answer some frequently asked questions. Or you can go to consumer finance Web site www.bankrate.com, one of the Web’s leading personal finance destinations.
Owner-operator Robert Jones, of Miami says “Sure I file a return. I always file it on time and I always make sure to send money with it. Always.”
If you still have a little time, a priority would be to make sure you have all of the numbers you need. It’s of little use sitting down to fill in your tax forms on April 14 without them. Know, for example, exactly what your income was. The IRS knows, so your numbers better match. If there is some paperwork still out with records of your earnings on it, get your hands on it quickly.
It’s also important to know exactly what deductions you have. This will determine whether you’ll itemize them or not. And if you do, it’s important that you can list every item, and list them accurately.
Same goes for tax credits. If you didn’t earn a whole lot, and/or if you have children, you are more likely to be eligible.
If you close in on April 15 and know you have no chance to get your taxes done and filed, you can ask for an extension. You would file Form 4868. You’ll then have until August 15 to do you paperwork. You can call the IRS toll-free at 1-888-796-1074 up till midnight April 15 with this request. But, if you owe Uncle Sam (or think you owe him) send the money before the deadline. The extension is for paperwork only. If you owe the IRS and file an extension but send no money, some steep penalties will start accruing. If you aren’t sure what you’ll owe but what you send covers 90 percent of the final bill, you’re okay. Don’t send $10 when you know the final bill will be closer to $1,000.
“I file, I get it off on time,” says Tony Wood, an Associated Trucking driver based in Plantersville, Miss. “But if you drive a truck you can’t get the breaks in your return that the rich folks get.”
Your 11th-hour return probably won’t get lost in that huge last-minute tidal wave of returns flowing through post offices all over America, but it might. You have a copy, but if you owe money send it certified or registered, then you’ll also have a receipt.
Rapid refunds can sound like a great deal round about now. But before you go for it, check out the fees you are paying to get your refund a few weeks earlier. You’ll then have to decide if the generally hefty costs are worth it. Basically someone is advancing (loaning) you the money before the IRS check arrives, and you pay a high rate for that loan. There are cheaper ways to borrow.
When you are in a hurry, there is an increased likelihood of oversight, of mistakes creeping into your return. Take the time to make a final check and see that you have not made an error that could cost you dearly.
The most common is a failure to sign the return. And remember to date it too. Double check all of the Social Security numbers in the return. If you have itemized deductions, take the time to double-check them. Itemizing is a complex process and IRS definitions and rules can be complicated. Another simple mistake is forgetting to send the check if you owe. Do that and you get an automatic late-payment penalty. Make sure you are filing on the right form. The IRS sends you forms this year based on how you filed last year. If your circumstances have changed, maybe they sent you the wrong form. Also check you have attached all the paperwork to your return, for example a W-2.
Now go back with your calculator and check all the math. A simple addition or subtraction failure could cost you a lot of money. And like any other errors, it can cost you time, too. If you owe, but pay too little because of a math error, you’ll face penalties on the tax due. It can also take the IRS a year to let you know there was an error in your return. So if the mistake is in your favor you get something more from the IRS, but it is money you could have had a lot sooner.
Be sure you have the right postage on it. The IRS won’t throw in the extra few cents for you.
If you’re a little tight right now, you can always pay by credit card. In the year 2000 taxpayers ran up $630 million in credit card tax bill payments. Check that IRS Web site on how you can pay with plastic, but remember, it costs. Each card payment brings you a fee of 2.5 percent of the total amount from the company that processes the payment. And, of course, if you don’t pay it off in full with your next payment you’ll be building up interest rate charges on your outstanding card balance. Many experts suggest that if you are going to have a hard time paying, ask the IRS for an installment plan before you turn to plastic. It’s cheaper in the long run. Unless of course you’d rather owe a card company than the IRS because the taxmen have a lot more options if you don’t pay up.
If what you owe is less than $10,000 you are automatically allowed to pay via installments, and with these schedules the IRS lets you work out a deal that gives the best chance to pay it all without excessive hardship.
If you are in such a tight spot that your tax bill is way more than you can pay, all is not lost. The IRS will work with you (the service figures getting something is better than years of fruitless, costly collection efforts). So you negotiate. This is no short cut to cutting your tax bill, it is only provided in cases of extreme hardship. But before you can talk to the IRS about such a plan, you must file.
But what if you are reading this on April 16?
File something. The law says you must. And filing late is certainly a better option that not filing. You still have problems, but filing will help minimize them.
There are penalties for not filing and, if you owe, for not paying. The longer you delay doing either, the higher the fines climb, with monthly jumps until you have a substantial new bill to pay the IRS.
The E-file Option
Filing taxes by wire is catching on, big time. The IRS expects 46 million of us to file via computer this year (or have our accountant do it). Last year more than 40 million Americans filed via computer. That’s nearly 14 percent more than 1999.
No computer? No problem. You can file by phone. And via phone or computer you can pay anything you owe the IRS at the same time you file your return.
The IRS says filing these ways has distinct advantages:
- Faster refunds: E-filers can get their refunds in as little as ten days. Most refunds are mailed back to you within three weeks of your filing.
- More accurate returns: IRS computers check your returns for mistakes, making it less likely you’ll get an error letter from them. And any mistake is corrected more quickly.
- Quick filing confirmation: You get an electronic response within 48 hours acknowledging the IRS has your return. If you phone it in, that acknowledgment comes before you hang up.
- No paperwork: You have nothing to mail to the IRS.
- State taxes too: Taxpayers in 37 states can file both federal and state tax returns in one filing. The IRS will send the state information on to the appropriate state agency.
- Easy payment options: If you owe the IRS you can set up an electronic funds withdrawal from your bank account, or give them your credit card number.
- Direct deposit refund: You can give the IRS an account number where they will directly deposit your refund.
Most e-filers use a tax professional. Sometimes their tax man prepares and files their returns for them electronically, or you can take a return you have prepared and the professional enters the data into software and files it for you.
To file by phone you’ll need a packet from the IRS that It also contains a worksheet that, when completed becomes your record of return. Fill the form out and, using a customer service number in the packet, call a toll-free number and follow the instructions. You can also pay any balance you owe the IRS by phone.
In seven states you can file both federal and state income tax with a single phone call. You can also arrange for the IRS to automatically withdraw what you might owe, or put what they owe you directly into your account while you’re on the line. And anyone who filed a tax return last year can use the phone to request an automatic extension of time (until August 15, 2002) to file this year. Just call 1-888-796-1074. But don’t call after the midnight, April 15, deadline. The line won’t work any more.
Don’t Get Tax-Scammed
Each year a bunch of new tax swindlers rear their ugly heads, and a lot of old scams continue to get a workout by tax scammers.
“Believing promises to cut tax bills, scam victims end up losing cash,” says Kay Bell, tax editor for Bankrate.com, one of the leading independent personal finance sites on the Internet. “Compounding their financial misery, they subsequently find themselves in hot water with the IRS.
“Rip offs range from phony prizes to ‘untaxing’ secrets to promised tax savings for older and ethnic filers,” says Bell. “Some folks can’t even trust their bosses, as work-related scams are gaining in popularity.”
Bell says some of the most common cons the IRS is alert to are:
Not withholding taxes from your paycheck:
“These scams rely on an interpretation of the tax laws that says wages are not a source of income,” says Bell. But, she says, the IRS – and federal courts – reject the argument and hit tax evaders with stiff penalties. “Individuals are still ultimately responsible for personal tax payments, even when a boss doesn’t withhold them.” If taxes aren’t withheld you could face a huge April tax bill – plus penalties.
Special refunds for African-Americans:
A persistent myth, says Bell. The scam is run by people offering to file for tax credits or refunds related to slavery reparations. There is no such credit.
Social Security tax scheme:
“This fiddle has con men telling older people that they can get a refund of the Social Security taxes they have paid over their lifetime,” says Bell. The swindler will ‘file’ the claim for a fee, usually $100. There is no such refund.
Win a prize!
With this rip-off, the scammer calls to let the victim know they have won a prize. All you have to do is pay the income taxes. “Of course you have to pay taxes on prizes,” says Bell. “The tip-off that this is a trick is that the con men ask you to send the tax payment directly to them. Taxes on prizes are payable to the IRS.”
This most brazen sting is a call to your home by a ‘federal tax agent’ who tells you there is additional tax owed and they are there to collect it, says Bell. Beware immediately. Real agents carry photo I.D. and almost always try to set up appointments before they turn up.
“I don’t have to pay taxes. It’s unconstitutional. They can’t make me’:
Says Bell: “Yes you do. No it’s not. Yes they can.”