Well, if you own a business (C corporation, S corporation, LLC operating as an S), then your corporate tax return should already have been filed.  The rest of you have until the 17^th of April (only this year) to file.  And, there are two new IRS provisions that may make your file submission a little easier. Many of you do not understand that an unincorporated business have a hidden provision that causes you to have a big tax bill.  It’s easier to explain this with a simple example.  Paul Naïve has a wife and two kids.  Paul runs a business that grossed $ 50K  and had expenses of $ 30K, leaving him with $ 20K profit.  His wife works for SmallCo, making $20K, and claims 0 dependents on her paycheck.  (Paul and his wife are sure that this choice, which takes out the most taxes, will save them from a big IRS bill at the end of the year.)   They know that, given the income taxes on $ 40K of income, with their four dependents ,  her withholding tax will cover their entire income tax. The answer is that’s correct- but the wrong consideration.  You see, Paul is self-employed, and his $ 20K of net profit is also subject to social security and medicare taxes- to the tune of almost $ 2500.  Meaning that the Naïve’s will still owe about $ 2500 in taxes to the IRS.   And, they don’t have it.  (Paul should have come to us in January and September- at the least- to help him with his tax planning, and maybe even make some changes in his operations to keep more of his money- but that’s NOT the topic of this discussion, today.) The worst thing the Naïve’s can do (and many do it) is to NOT file taxes, because they owe money.  That means  they will owe penalties and interest.   A failure-to-file penalty (5% of the unpaid taxes each month your filing is late, up to 25% of the total unpaid taxes due) and a failure-to-pay penalty of ½ % monthly (also up to 25%).

This year, given one of the new provisions I mentioned above, if Susie Naïve was unemployed for 30 consecutive days in 2011 or in 2012 up to the filing date (again, 17 April), they can file an extension request (Form 4868) and pay in full by 15 October – and be absolved of this penalty.  (If they don’t pay by 15 October or don’t file- then they probably will have earned the maximum penalty).  There’s another tripping provision to this Fresh Start program- and that applies if Paul’s business income dropped by 25% from 2010 to 2011. Either provision lets them (and you) file IRS Form 1127-A (Application for Extension of Time for Payment of Income Tax for 2011 Due to Undue Hardship) and that must be filed by 17 April, too. (You will notice that the form expects you to have determined your income tax liability already.  You can’t wait until later to begin doing your taxes.) This new provision  exists for THIS year- and is called the Fresh Start program, which recognizes that the economy is still not rock solid.  And, lets those who have been hit the hardest get a little more breathing room.  As long as your income is $100,000 or less (single or head of household), unless you are married filing jointly (when the limit is $ 200K). Unfortunately, this provision just absolves you from the penalties.  The IRS must collect interest, which is currently at 3% on all unpaid taxes.  This is a provision of law, that the IRS cannot change on its own- it’s up to Congress to change that fact.

The other big change this year is for the installment request. (What- you didn’t know about this Form 9465?)   Until this year, you could request (it was not automatically granted- usually because you haven’t filed timely in the past or still owe taxes that you have not addressed) up to a total of $25K.   If you owed more than that, you had to arrange with the IRS a special program- which involved a most detailed application covering your assets, income, and a whole bunch more. As of this year, one can file a Form 9465 for amounts up to $ 50K.  And, you now have up to 72 months to pay.  Oh, another new change for the installment request  You can no longer promise to send in the check each month- it has to be directly debited from your account.

So, get those taxes computed.  And, pay what you can- the interest and penalties can end up being as large as the taxes owed.  (We are available 24 X 6, to help you in this endeavor  www.adjuvancy.com [where you can find our phone numbers, too).  Or if you want to figure the tax situation yourself, you can file directly with the IRS and your state agencies with our software at www.taxesdonehere.com for a most reasonable price.)

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