Do You Think You’re Going to Owe the IRS this year?

Funny how so many people come in as soon as possible to get their taxes done when they think they’re going to get a refund. Tax preparers are inundated in late January and early February, then have a big gap until the middle of March when their clients start coming in who aren’t sure. Then…..if they’re going to owe money, they want to file an extension to postpone the time when they “have to pay.” Worse -- a lot of people come see us for the first time in October when there's little time left to deal with a large tax bill.

If you think you’re going to owe the IRS or State this year, I have a new plan for you. Go ahead and have your tax return prepared as early in the year as possible (Click Here to make an appointment), find out how much you’re going to owe, and work with your preparer to strategize on when to file or how to get a payment agreement for the amounts owed. This way, at the very least, you save on the following penalties:

• 5% per month for five months on the tax owed if you fail to file on time. By filing an extension, you extend the time to file until October 15^th without this penalty. If you file on October 16^th, though, wham!!!! You'll get hit with a 25% penalty going back to April 16th, plus

• 0.5% late payment penalty on the unpaid tax for each month or partial month you don't pay.

Interest is charged on top of the tax and penalties and varies depending on the prevailing interest rates, which are currently 3% per annum.

The Moral of the Story???

Always, always, always file your tax return on time, even if you can't pay the amount owed. For purposes of this moral, filing an extension extends the filing date for six months, so your individual tax return is considered on time if you file by October 15^th with an extension.

How expensive is filing late???

Let’s say you owe $5,000 when you file late on October 16^th. Here’s about what you would owe:

Late filing penalty for first five months: $ 1,250.00

Late payment penalty for first five months: $ 125.00

Interest from April 16^th to October 16^th : $ 95.63 (Approximately)

Total owed: $ 6,470.63

If you had filed on time even without paying the tax owed, your bill would be $1,250 less along with an adjustment on the interest.

Total owed: $ 5,201.88

So…..come on in; Click Here and make your appointment today, get your return prepared early, and if you owe and can’t pay, have us give you the best advice on what to do in your particular circumstances.

When I started this business way back in 1977, after spending six years in part-time tax work while working as a Controller for a major real estate company,  I thought I could work for three months a year and either goof off or spend part of the rest of the time as a small business consultant. Wow! I was mistaken.  I think it is because I typically think outside of the box and actually think your “fair share” of taxes is the least amount  you are legally obligated to pay.  After all, that is exactly what Warren Buffett and Bill Gates do despite their public utterances and protest about rich people paying too little in taxes.

In all these years, I have been occupied with taxes all year-round and never seem to get completely caught up.  Although, now that I’ve turned over the management of this company to my smart daughter, Sabra, and the company mother, Linda, I must admit I have time for more things and am loving taking a step back and figuring out how we can better serve each of you.  I am now reviewing our clients one by one and trying to figure out when can be done to reduce your taxes and make it easier for you to maintain your necessary records.  To that end, I am working on some exciting things and will share them with you as they become more concrete.

In the meantime…….., this is an open invitation to all of our TaxMasters’ clients and friends, no matter who actually prepared your tax return, to This e-mail address is being protected from spambots. You need JavaScript enabled to view it if you think there is anything at all you wish to discuss.  Small business clients, professionals, employees, new entrants into the work force….all of you.   This e-mail address is being protected from spambots. You need JavaScript enabled to view it with your questions, concerns, bright ideas or "what ifs" and we will respond.  There will be no charge, period, for exploring what can be done for you.

For example…..if you are self-employed and paying for your own health insurance, I can probably save you at least 40% of the amount you are paying for out-of-pocket medical costs, including Medicare and prescriptions.  No, no, no…..I’m not selling anything but tax planning, and you will save those costs really quickly.

Another example……if you are self-employed and you have children 10 years old or older, we can probably do some amazing tax planning for you that will make you wonder why no one approached you before about it.  Again, no….I’m not selling anything but tax planning.

So…..no matter if Sabra, Dotti or I prepare your taxes….or you are a friend of TaxMasters and have another preparer, let me know if there is something you think that maybe we can do for you.  After all, we will soon have nothing to do until February…….(not!)

I look forward to hearing from you.

Jerry Slade

^{Just in case you have a Corporate, Partnership or Trust tax return yet to file, listen up!}

^{You may think you have until October 15th to file your calendar year Corporate, Partnership or Trust return for which you filed an extension, but you don't and you may be faced with significant penalties if you file late!  The deadline for this year is September 15, 2011.  Some business returns have pretty hefty penalties, such as partnerships and tax-exempt organizations.  The others typically cost you 5% per month of the tax due for the first 5 months the return is late.  These penalties are assessed from the original due date of the tax return and also carry interest, which is presently 4% per annum.  After 5 months, the late filing penalty drops to 0.5% per month.}

^{Symptoms of a problem:  Filing a business return after the original due date is really a symptom of a bigger problem; that is, the fact that insufficient attention is being paid to keep business records up to date.  Filing a return by the original due date should always be a priority unless a later filing, with an extension, allows the return to be prepared more accurately, or is a strategy you and your professional tax preparer are using to deal with things like funding pension plans.} 

^{Don’t procrastinate on business returns:  If you aren’t ready to hand over your business records to your professional tax preparer, who must be an Enrolled Agent or a CPA, by February 15th for calendar-year returns, there is something wrong that needs to be fixed.  If you need help getting your books in order to give to your preparer, we can help you!  We have experienced bookkeepers who know how to prepare books that are not only accurate, but are categorized in the way a tax preparer wants to see them for tax-reporting purposes.}

^{If you need help getting your business tax return done by September 17th, 2011, give us a call right away.  If you extended your business tax return, you probably need to get your individual tax return done by October 17th, 2011.  Don’t be late on that one either.  The penalties can be serious.}

^{Don't fail to file your return on time, even if you can't pay the taxes you may owe.  Filing tax returns and paying the tax due are two different things.  Don’t ever be late in filing.  The penalties for not filing are much more punishing than the penalties for not paying the tax.  Just send the return in on time and we can help you worry about how you can get the tax paid.}

One of the most rewarding things we do is to provide representation for clients who have encountered problems with the IRS or State taxing agencies.  Sure, we enjoy and never tire of preparing tax returns and giving our clients helpful tax planning and/or business consulting along the way, but we believe our main purpose is giving our clients the best shot at resolving their tax problems with the IRS and State taxing agencies in the best possible way.

I have personally been representing clients for a long, long time, since 1979, and I always found it satisfying to make the IRS follow the law when dealing with my clients.  When I first started, IRS agents were taught that taxpayers were cheaters and liars and that intimidating them was the best way to get the most money out of them.  It was pretty brutal in those days with the balance tipped in favor of the power of persuasion over taxpayer rights and the law to fall back on.  It is still that way with many States, especially California, being taxpayer bullies and extracting their pound of flesh even if that means the taxpayer and their children are forced onto the streets.

The passage of the first “Taxpayer’s Bill of Rights” in 1988 was a great step forward in giving taxpayers a level playing field with the IRS from a legal if not from a practical point of view.  It has taken several years since then to smooth off the rough edges of many IRS agents some of whom did not think the new law was for them.  However, we now have legal tools to keep the IRS from treating taxpayers the same way they used to.  We are finding it even pleasant to talk with some of them when we are both of a mind to resolve the problem in a fair and doable way. 

Taxpayers are still ill advised to try to resolve their cases for themselves.  The IRS knows it is competing for the few dollars you have. It almost always comes out much better when you have a qualified representative, such as an Enrolled Agent or CPA.  Even then, your chosen representative should have plenty of experience.

Jerry W. Slade, EA

408-236-2444