Imagine: it’s the morning of April 15th in America. You’re just getting up to grab your first cup
of coffee for the day. While you are
stumbling through your place to get to the kitchen, you step outside to pick up
the paper. As you wipe the sleep from
your eyes, you catch the headline, “IT’S TAX DAY!!!!” Oh, no!
You’ve been so busy with that project at work, you kept putting off
doing your taxes and now you are toast!
What do I do now? You ask yourself.
Well, the first thing you need to do is get a grip on
yourself and drink your coffee. Now, sit
down and think for a minute or two. What is your tax situation? Are you a wage-earner with a Form W-2? Do you
know where your W-2 is? Did you only
work one job in 2013? If not, do you
have all of the W-2’s from jobs you worked in 2013? Were you self-employed during the year? Can
you pull your records together quickly?
Do you own a home and can you find your Form 1098, Mortgage Interest
statement, and your real estate tax statements?
If you answered “yes” to these questions, you’re off to a great start.
Just call your local Liberty Tax office and make an appointment to come in
TODAY and get your taxes filed and you’re done!
You’ll sleep better tonight, I promise!
Extensions May Be The Way To Go
But, what if you can’t answer “yes” to all of the
above? Then, what do you do? Well, you still should call your localLiberty Tax office and make an appointment to come in and file and extension
(Form 4868). Filing an extension allows
you to file your taxes up until
October 15 without penalty. But, (you
knew there was going to a “but”, didn’t you?) if you owe taxes, filing an
extension does not grant you an extension on paying your taxes late. So,
if you think you are going to owe taxes, you’d better make a quick estimate of
your tax liability while you are in the Liberty Tax office, and pay those taxes
TODAY to avoid penalties.
... Or Else You May End Up With a Penalty
“Penalties?” you ask.
“What penalties?” The IRS, like
an Amazon River piranha with razor-sharp teeth, will extract blood, er,
penalties, from you for not filing on time and not paying the taxes owed. A “Failure to File” penalty is 5% of the
unpaid balance per month up to a maximum of 25%. If you are more than 60 days late, then the
penalty is the smaller of $135 or 100% of the tax due on the return. “Whew!” you say. “Only $135 if I’m more than 60 days
late!” Not so fast, Mr.
NASCAR-wannabe! That’s just the “Failure
to File” penalty. There is also the
“Failure to pay” penalty of 0.5% of the unpaid balance per month up to a
maximum of 25%.
Let’s put these penalties into perspective. Say your income is $40K, you’re single, age
40, with no dependents, and you are not itemizing your deductions. And, when you look at your Form W-2, you see
that your employer withheld only $1,000 for federal taxes (FITW). You will owe a little over $3,000, assuming
you had no other tax issues, like, an early withdrawal penalty on an IRA/401K. If you do not file until, say, June 1, your
“Failure to File” penalty will be approximately $225 and your “Failure to pay”
penalty will be approximately $15.
“Well” you say, “Those penalties don’t sound too bad.” But then for the next month, those penalties
become part of your “balance due” amount and get added onto the percentage of
amounts due. You might also be charged
with a “Fraudulent Failure to File” penalty which is a whopping 15% of the
amount due up to a maximum of 75%! You
don’t want to mess around with the IRS!
Ok, so you gather your forms together and you call your local Liberty Tax office. They go
through your paperwork meticulously and come up with the amount owing, but you
cannot possibly stroke a check for that amount today. If you’ll file a Form 9465, Application for
Installment Agreement, you can work out a payment plan and, within certain
parameters, you can name your monthly payment amount.
A Word of Advice
I hasten to add here that if you do NOT owe taxes, then
there would be no penalties as discussed above.
However, I can’t tell you the number of people who have come in to see
me with back taxes to file and just about 99.9% of them will tell me, “Oh, they
owe me money. I don’t owe them!” Yeah, right!
And, do you know how many of those who think they (the IRS) owe them
money, but actually end up owing the IRS instead? About 50% or more! And, IF
the IRS does owe you money, then why in the world would you want THEM to hold
your money interest free?
In conclusion, if you have not already filed your taxes,
your best bet is to gather your forms and other related paperwork together, make an appointment with your local
Liberty Tax office, and GET THOSE TAXES FILED PRONTO!!! Don’t delay!
Raymond D. Nations is an Enrolled Agent, a licensed tax
professional, specializing in tax CPR – Compliance,
Preparation, and Representation before the
IRS. A franchisee of Liberty Tax
Service, he has 30 years of tax experience in, not only individual taxes, but
also in Corporate, Partnership, Estate, and Trust tax preparation. He is member of the National Association of
Enrolled Agents, Delegate-at-Large of the Virginia Society Enrolled Agents, and
Vice-President of the Hampton Roads Chapter of Enrolled Agents. In addition to his EA credentials, Ray also
holds Series 6 and 63 securities licenses, and Life and Health Insurance
licenses. Currently, you can hear him on
radio station WNIS, 790AM on the 1st and 3rd Wednesdays
of the month at 6:05PM to 7PM, Ask The Experts, a call-in program, where he
discusses anything and everything tax-related with callers and other listeners.
Please contact him at his office in
Hampton VA, 757-850-0840.