BY GREG MERMEL, CPA
Two weeks remain before the deadline for filing your income taxes. Some of you are smug and happy: you filed your returns and have already received your refunds. Some of you are smug but grumpy: the paperwork is done, but you won't mail it till the last minute because you will be including a check for a non-trivial amount of money.
Others of you are a little nervous, a little energized, but you know you will finish in time. Your tax preparer has your information and may need just a few bits of data, or at least you have an appointment with him and know what he needs.
Then there are those who unhappily oscillate between panic and denial. They have not even started their taxes, and cannot quite bring themselves to. Perhaps they have convinced themselves they are just too busy to get to it, and that might even be true. Maybe they know--just know, without doing any math--that they are going to owe oodles of money that they do not have. Worse, maybe they really do know. Their completed forms are sitting on the kitchen table, showing a balance due that they cannot pay before April 15.
If you are part of this third group, this column is for you.
What Not to Do
To start, do not just throw anything together to file at the last minute. You will screw it up. I've been dealing with performers' taxes long enough that I know you will. Besides, you want to be on the 10 o'clock news in a national commercial, not as a schlemiel in line at the post office on April 15.
When you were in college, you probably talked your way out of term paper deadlines regularly: a good story about deadline conflicts, or tech week, or wanting to do that extra research to get it right, and oh, isn't that a cute picture of the professor's kid on his desk?
Do not try this emotional line with the Internal Revenue Service or any other tax agency. It will not work. The agency as a whole does not care. They have rules, they have policies, and that is how they function. The individual you are talking to is also indifferent: you are not interested in her personal problems (and being human, she has them) and she is not interested in yours.
What To Do
The IRS does not really care whether you file by April 15, so long as you have paid them by that date. As with Willy Loman, "attention must be paid." You cannot just ignore the deadline. You must go through the simple exercise of asking for an extension of time to file. They will grant it automatically, but they insist on the formality.
The process is not difficult. If you are brave enough to use your home computer to file electronically, the software can also e-file an extension. If you are not making a payment or want the IRS to directly withdraw the money from your account, you can do it by phone at 888/796-1074; have a copy of your 2003 return handy, as you will need some numbers from it to prove that you are you.
Or you can do it the traditional way, by filling out a paper copy of form 4868, "Application for Automatic Extension of Time to File" and mailing it to the IRS with or without a payment. As with any IRS filing, the date of the official postmark is treated as the date received.
Remember, though, that the IRS is giving you an extension of time to file, not to pay. Unless you make an adequate payment with the extension, you will owe penalties and interest later. Obviously, you will not know the exact amount of your actual taxes when you file the extension, but a good educated guess will minimize any penalties and interest should you turn out to owe money when the return is completed and filed.
Illinois, like most states, automatically grants an extension if you obtain a federal one. You need not contact them at all before April 15 unless you are making a payment. Seven states or quasi-states, however, require that you file separate state extension requests. The District of Columbia, Connecticut, Massachusetts, North Carolina and Virginia require their own forms. Hawaii and New York will accept copies of the federal form if you are not making a payment, but require their own if you are.
If You Really Can't Pay
My usual advice is to pay the state(s) first. The amount is usually lower, they generally have higher rates of penalty and interest than the IRS, and they are typically unwilling to negotiate installment agreements.
Beyond that, pay the IRS what you can. You might want to file the return including a request for an installment agreement, which will almost certainly be approved. But they charge a $43 fee for that. Some people just file an extension request, perhaps with a partial payment, and then file and pay the balance simultaneously. The late payment penalty and interest will be the same, either way.
You can also pay your taxes by credit card, though I discourage the practice. By the time you pay the 2.5-3.0 percent "convenience fee" and the credit card interest, IRS penalties and interest are usually less costly.
But file something by April 15. The late filing penalties are much higher: five percent of the unpaid tax per month to a maximum of 25 percent.
Some Really Must Rush
A tax return must be filed within three years of its due date in order to claim a refund. So, if you are one of those people who really, really cannot get it together about taxes, the drop-dead date for filing your 2001 tax return is April 15 unless you remembered to get an extension around this time in 2002.
Still Handing Them Out
If you would a like free copy of my checklist of potential deductions for those in the arts, just call, write or e-mail me and I'll be pleased to send one out.
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.