4-14-06
Postponing the Inevitable
This year’s calendar has a gift for the dilatory. Whenever a tax deadline falls on Saturday, Sunday or a legal holiday, the due date is automatically deferred to the next business day. April 15 this year is a Saturday, so the tax deadline is Monday, April 17.
Those of you who have already filed either your 2005 taxes, or the appropriate extension requests, now have a choice: skip to another part of the paper, or indulge your taste for schadenfreude by reading the rest of the column.
The rest of you should gather ’round the campfire and listen to the voice of experience.
Taking the Situation Apart
Some of you procrastinators might be able to finish your tax returns between now and midnight on Monday without messing them up. Your returns are all done except for one or two bits of data, perhaps that last elusive receipt for a charitable contribution or a Schedule K-1 from a partnership or trust. Those bits of data can be quickly inserted and the paperwork completed. If my assessment of my readers is correct, I have an ample supply of fingers to count this group; I might even have enough thumbs.
More of the campfire crowd has its preparation in various stages of physical disarray. Started and set aside in favor of more pressing items (like ironing your socks), or perhaps merely with mounds of documents (both necessary and unnecessary) waiting to be sorted and reviewed. All right next to the stack of freshly-sharpened pencils and software you haven’t figured out how to install.
Perhaps you have put the disarray into the computer: the software is installed, you’ve entered some of the data, but you’re not sure whether you did it right and boy are you getting some strange results.
And some of you are undoubtedly closing your eyes and hoping it will just go away. It won’t. (If your eyes are still shut from last year, or several prior years, please see me after class before the IRS does.)
Here’s what you should not do: put the tax returns together in whatever dubious, inaccurate form you can and prayerfully send them in on Monday. Signing a tax return involves making a sworn statement that “to the best of my knowledge and belief, they are true, correct and complete.” You know that those slopped-together returns are no such thing. Even if you don’t care about perjury, you will likely pay too much tax, guarantee nasty correspondence with the IRS and the state, or both. Do you want that?
What The IRS Wants
There are two distinct parts to the tax process: figuring out the amount of the tax, and paying it. They don’t necessarily occur in that order. The tax returns are primarily your calculation of the tax amount for the year. That’s the hard part. The easy part comes at the end, where you compare that amount to what you have already paid; either you owe the tax authority money, or they owe you a refund.
The mid-April deadline is more about payment than about the tax calculation. The IRS will gladly give you an extension of time to file the paperwork, but they want their money. Now.
To receive an extension, one must merely ask by filing form 4868 or its on-line equivalent. The form is simplicity itself, occupying about one-third of a sheet of paper: name, address, Social Security number and four figures: 1) your best guess at your tax for the year, 2) the amount you have paid so far, 3) the difference between the first two numbers, and 4) the amount (if any) you are paying with the extension. And the IRS doesn’t even really care about the first three numbers. You could say you owe them eleventy-zillion dollars and are paying nothing, and you would still get the filing extension.
But if you owe them money and don’t pay it by the original due date, they will charge you interest. They will also charge a late payment penalty, which is just more interest under a different name. The same is true with the state, though their ways of calculating these earlier penalties are somewhat nastier. If you can’t pay both now, pay the state first.
Illinois taxpayers do not need to file a separate state extension request unless you are sending money; the Illinois extension form (IL-505-I) is nothing but a payment transmittal coupon. The same is true for most other states. But you need to submit a state’s own extension form if you have to file in Connecticut, the District of Columbia, Massachusetts, North Carolina, Tennessee or Vermont; New York requires that you send it either a copy of the federal form 4868 or New York’s own extension request.
If You’re Broke
Not having the money to pay your taxes is a serious problem. If it is a temporary embarrassment, there are ways of addressing it, through installment agreements or simply paying up (including penalty and interest) when you do file before the extension runs out.
Using lack of money as a reason to stay in denial about taxes makes the problem worse. The federal penalty for not filing on time is 5 percent of the unpaid tax per month—that’s right, per month—to a maximum of 25 percent in addition to the interest and late payment penalty. Ugly. The Illinois formula is more complex, but also nasty. The best that can be said is that it does not involve midgets in Rod Blagojevich wigs beating your feet with bamboo sticks.
Still Available
When you start to finish your extended tax return over the summer, you may want my free “Checklist of Potentially Deductible Items for Persons in the Arts.” Just write, call or e-mail me at my office.
Are there money or tax questions you would like to see discussed in this column? Let me know, at 2835 N. Sheffield, Suite 311, Chicago, IL 60657, or call 773/525-1778 (888/525-1778 toll-free outside the Chicago area) or e-mail greg@gregmermel.com.
Greg Mermel is a certified public accountant whose clients in the arts range from individual performers to major theatre companies and suppliers. He has also been known to produce theatre.