BY GREG MERMEL, C.P.A.
An old Texas football coach was asked why his teams always played offense on the ground and almost never threw a pass. He allowed that "there’s only three things that can happen when you put the ball in the air, and two of them are bad." So it is with doing your tax return at the last minute.
You might get it right. This could be pure, dumb luck. Or it could be that your tax forms are so simple as to be just about foolproof. If you have the foolproof forms, waiting until right before the deadline is silly because those simple situations usually involve a refund. If someone owes you money–and will pay you whenever you ask for it–why on earth would you wait to ask?
Unlike the forward pass, "getting it right" is the least likely scenario for a hastily assembled, last minute tax return. The other two are mistakes nobody notices, and mistakes the IRS finds. Which hurts worse depends on your personality.
Mistakes nobody notices generally involve paying too much. Typically, there were deductions that you could have taken if you had had the time, patience, filing system, supportive spouse, a few more days, et cetera. Nobody is ever going to know that except you, and maybe your not-so-supportive significant other. The Internal Revenue Service will never write to you about this sort of overage, because they have no way of knowing. But nevertheless, you wasted money. One of the fundamental principles of the American tax system is that everyone pays his fair share: no more and no less. We may argue endlessly about what that fair share should be, but nobody should pay more taxes than required.
Mistakes the IRS notices get brought vigorously to your attention in the form of little love letters from them. These letters are almost invariably computer generated, and they address the kinds of mistakes computers can easily find. Math errors. Wrong tax table used. Invalid Social Security number. Incomplete information on this or that form. Information on the tax return inconsistent with the W-2s and 1099s received from payers. And so on.
Nobody likes being told he is wrong, particularly by a powerful government agency. Despite a major program to improve the tone and comprehensibility of IRS notices, they are, for most people, confusing and frightening. This is not entirely the IRS’s fault. Often, the substance of the notice is half a page or less, followed by several pages of legally-required notices about how interest is calculated, what your procedural rights are, and so on.
Maybe I Won’t
Many people are surprised when I say that the IRS also wants you to take your time and get it right. Partly, it is because they do subscribe to that American notion of "fair share, no more and no less." But mostly, it is because all those notices and correspondence and corrections are costly and inefficient. The more resources they have to dedicate to cleaning up errors, the less they have to go after tax cheats.
This is why the IRS has made the process of getting an extension of time to file your return easier than voting in a Chicago election, except, of course, that one must be alive to deal with the IRS. The four-month extension is automatic, but you do have to ask for it using an extremely simple form. A form 4868 requires your name (legal name, not stage name), address and Social Security number. Put down how much you think your taxes for the year will be. This is not as hard as it may seem, because the answer does not have to be right. Below that, enter how much tax you have paid so far, through withholding and quarterly estimate payments. One of these figures will be bigger than the other. If you have more paid in than the tax figure, you’re done. If it appears you owe money, you should–but don’t have to–pay it with the extension. At worst, you’ll have to pay some of the penalty and interest I discussed in last issue’s column.
State income tax may require a bit of attention, also. Eight entities require a separate extension request on their own forms: Alaska, Connecticut, District of Columbia, Massachusetts, North Carolina and Virginia. Two others–Hawaii and New York–will take either their own forms or a copy of the federal form. Illinois and the remaining states simply equate the federal extension with theirs, and want something on paper only if you are making a payment.
About the forms: Getting tax forms at the library is largely a thing of the past. Federal forms can be downloaded from the IRS’s Web site, www.irs.ustreas.gov, and virtually all states similarly provide forms on line. Or you can drop by my office: We always keep some extras available.
And When You Do Get Around To It
You might find a copy of my "Checklist of Potentially Deductible Items for Actors, Designers and Others in the Performing Arts" useful. Just call or write me with your name and address, and I’ll send one.
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 also sometimes produces theatre.