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Tax Chat
UNABLE
TO PAY YOUR TAXES BY APRIL 15th?
What should you do if you owe money to the IRS for your 2001 taxes,
but don't have enough money to pay what you owe by April 15th?
Here are a few suggestions to help you buy some time:
If you can pay most of your taxes by April 15th
If you're able to pay at least 90% of your total tax liability, as
reflected on your Form 1040, all you need to do is file for an
extension of time to complete your tax returns. This strategy allows
you to defer paying as much as 10% of your 2001 federal income taxes
until August 15th. Keep in mind that the IRS will assess you interest
on the balance due (of approximately 7%), plus will also assess a
"failure to pay" penalty of 0.5% per month on the balance
due. So expect to pay an additional 13% on any money owed to the IRS.
To file for an extension, simply complete and submit a Form 4868.
Remember, for the extension request to be valid, you need to have
paid in at least 90% of your total income tax liability prior to
April 15th. Otherwise, your extension could be deemed null and void
by the IRS, and you could end up being hit with the 5% per month
"failure to file" penalty.
If you'll come up with the balance due in the not
too distant future
Let's say that you don't have enough money to pay your taxes by April
15th, but anticipate getting the money to cover the shortfall during
the next month to six weeks. If you're in this boat, make sure
to file your tax return by April 15th, and include a check to the
United States Treasury for as much as you can afford to pay at that
time. During the month of May, the IRS will send you a bill
reflecting the balance of taxes that are due. Soon after receiving
the bill, send in a check to the IRS paying off the total amount due.
Don't forget that you'll owe interest, plus the "failure to
pay" penalty of 0.5% per month, on the outstanding balance.
If you need more time to pay off the taxes that are due
One other alternative is to enter into an installment arrangement
with the IRS. This is done by completing and filing a Form 9465, and
attaching the completed Form 9465 to the front of your federal income
tax return. On this installment request form, you tell the IRS how
much you can afford to pay each month and the day of the month that
the payment will be made.
The IRS charges a fee of (around) $43 to any taxpayer who enters into
an installment arrangement. In addition, the IRS will charge interest
at 7% per month, and a "failure to pay" penalty of 0.5% per
month on the outstanding balance. Plus, failure to make a scheduled
payment will cause the remaining outstanding balance to become
immediately due.
The Last Resort - The Offer in Compromise
If the amount you owe is so large that you can't pay it off through
an installment plan, you're last resort is to enter into an
"Offer in Compromise" with the IRS to try to get them to
reduce the amount of taxes owed. You can find information on
Offers in Compromise on the IRS' website (www.irs.gov).
Always Submit Your Tax Return on Time
As you can see, if you owe money to the IRS, you can expect to be
charged interest, plus a "failure to pay" penalty of 0.5%
per month, on the amount owed.
The penalty for not filing your tax returns, however, is a whopping
5% per month, up to a total of 25% of what's owed. Since the
failure to pay penalty is so much smaller that the failure to file
penalty, always try to file all your tax returns on a timely basis,
even if you're unable to pay the full amount of the taxes due at that time.
NEED HELP WITH YOUR TAXES?
Check out our Directory of
Affiliated Offices to find a CPA near you who specializes in the
tax planning and preparation for young health care professionals.
FINDING FINANCIAL COUNSELING
YOU CAN REALLY AFFORD
When you have a toothache, you go to the dentist and when your pet is
sick, you go to the veterinarian. But where do you go if you
need help with your personal finances? More and more, people
are turning to financial counselors to help them with their finances.
Just check the local yellow pages and you'll see that there's a
plethora of financial counselors out there. How can you find
one that's right for you? Start by asking your friends, family,
and business colleagues the name of their financial counselor and
whether they are happy with the advice they have received. If
you have a relationship with a CPA or an attorney, ask them for a
recommendation as well. Then, after gathering some names, meet
with at least three different financial counselors to get a sense of
how they work.
The ABC's of Financial Counselors
When deciding who to work with, you may be surprised by all the
different initials financial counselors put after their name.
Certified Financial Planners (CFP) and CPAs with a Personal Financial
Specialty (PFS) designation have passed comprehensive exams on all
aspects of financial planning. Financial counselors with either
of these designations should be able to advise you on a wide range of
issues pertaining to your personal finances.
If you're looking for help with your investments, you might consider
working with a Registered Investment Advisor (RIA). And if
you'd prefer working with a professional licensed by the insurance
industry, then look for either a Chartered Life Underwriter (CLU) or
a Chartered Financial Consultant (ChFC).
Even Financial Counselors Need to Eat
Nobody works for free. Financial counselors earn their money by
charging an hourly rate, receiving a commission by selling
investments or insurance products, or by charging an annual fee based
on assets under management. Make sure that you understand how
your financial counselor will be compensated and decide whether you
are comfortable with that arrangement.
Do Your Due Diligence
Once you have narrowed your choice to one or two financial
counselors, you need to do your due diligence. First, ask for a
handful of references and give those people a call. Next,
contact the better business bureau, your state attorney general's
office, and the applicable state regulatory agencies to see if any
complaints have been filed against this person. If nothing pops
up during your due diligence, and you are comfortable with how the
financial counselor works and gets compensated, then set up an
initial meeting to get the ball rolling.
Do-It-Yourselfers Need Not Despair
If you prefer to handle your own finances, the internet has made your
job much easier. Through the internet, you have access to an
abundance of information on personal financial planning and research
on stocks and mutual funds. You can also set up an on-line
brokerage account, where the fees to manage your portfolio are
generally quite low. All these on-line resources allow
do-it-yourselfers to act as their own financial counselors.
TAX AND FINANCIAL PLANNING
CALENDAR FOR APRIL, 2002
|
Month |
Income Taxes |
Saving and Investing |
|
April |
-
Personal income tax returns are due 4/15/02
-
Request for automatic extension, Form 4868, due 4/15/02
-
1st Quarter estimates due 4/15/02 |
-
Due date for funding your 2001 Roth or Traditional IRA
is 4/15/02
-
Due date for self-employed individuals to fund their
retirement plans is 4/15/02
-
Self-employed individuals who need additional time to
fund a retirement plan should file a Form 4868 with the IRS |
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THE YEAR IS 25% OVER. HAVE YOUR
HOUSEHOLD FINANCES IMPROVED?
If you're married, and you and your spouse Need
some guidance, check out
NewlywedFinances.com.
(Brought to You By Your Friends at MDTAXES.COM)
|
2000
& 2001
TAX FACTS
-
For 2001, the standard deduction for a single individual is $4,550
and for a married couple is $7,600. A person will benefit by
itemizing once allowable deductions exceed the applicable standard
deduction. Itemized deductions include state and local income taxes,
real estate taxes, mortgage interest, charitable contributions, and
unreimbursed employee business expenses.
- For 2001, the personal exemption is $2,900. Individuals
will claim a personal deduction for themselves, their spouse, and
their dependents.
- The maximum earnings subject to social security taxes
has been increased to $84,900 in 2002 from $80,400 in 2001.
- The standard mileage rate has been increased to
$.365 per mile in 2002 from $.345 per mile during 2001.
- The maximum annual contribution to a 401(k) plan or
a 403(b) plan has been increased to $11,000 for 2002 from
$10,500 in 2001. And if you'll be 50 or older by December 31,
2002, you can contribute an extra $1,000 into your 401(k) or 403(b)
account this year.
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