The tax toil

guest commentary by David Potts

2010’s individual income tax returns are due April 18. Many of you haven’t even organized the necessary information needed to prepare your returns.

Others won’t be able to complete their returns because they are waiting on a CPA somewhere to finish up an S Corporation or Partnership tax return and send to them a K-1 (a tax information statement) with information needed to file an accurate and complete income tax return.

And there are a few people who won’t file by April 18 because they haven’t filed since 2005, and they are afraid if they do file, the IRS might notice they are still alive. If you are in this last group, not filing an income tax return makes it worse. File this year. If you are not prepared to file your income tax return by next Monday, relax and read on. Here is all you need to know.

You don’t have to file by next Monday. You can file for an extension of time to file your income tax returns. I discussed the filing of extensions for business income tax returns last month, and that discussion is also relevant for individuals filing their income tax returns.

However, today’s article is meant to be more nuts and bolts. To extend the due date for filing your individual income tax returns, all you need is Form 4868 – Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Where can you find the form? Just click here for the link to the form and follow the instructions printed on the form. The mechanics of filing an extension are simple, and the extended deadline becomes October 15, six months later.

Need an extension for Arkansas or Oklahoma? Just file for a Federal extension. Arkansas automatically grants you an extension of the time to file your Arkansas income tax returns if you filed a timely Federal extension. Oklahoma accepts the Federal extension as long as you don’t owe any additional income tax for 2010.

Take note, however.  This is an extension of time to file your income tax return forms, not an extension of time to pay your income taxes. If you expect to owe income tax when you file your income tax forms, estimate how much you think you will owe, and then pay that amount in when you file your Form 4868. To send money for you expected 2010 income tax due to the State of Arkansas, send a check with Voucher 5 of the 2010 Form AR 1000ES Estimated Tax For Individuals.

If you expect to owe additional 2010 income taxes to Oklahoma, file Oklahoma Form 504 – Application for Extension of Time to file an Oklahoma Income Tax Return, and pay your remaining 2010 Oklahoma income tax with this form.

Here are a few more quick tips.

What if you don’t have enough money in the bank to pay all your estimated 2010 taxes on or before April 18th? First, try to borrow the money from the bank. If the bank turns you down, try your mother. Most mothers trust their kids.

The penalties and interest charged for delinquent payment of taxes are generally more than the interest a bank would charge. The IRS charges a penalty for late payment of ½ of 1% each month plus interest. The interest rate for underpayment of your federal income tax is currently 4%. Arkansas and Oklahoma are loan sharks. Arkansas’ penalty for delinquent payment is 1% per month plus an annual interest rate of 10% on the unpaid balance. Oklahoma’s penalty is a flat 5% of the delinquent tax plus interest at a rate of 1.25% each month, or 15% per year.

If you don’t have enough money to pay both your Federal and state tax liabilities, then pay your state taxes first. You’ll pay less penalties and interest by paying the states’ taxes first.

The quickest way I know to estimate your 2010 income tax liability without preparing your income tax returns is to review your 2009 income tax return. Go through your 2009 return and estimate what items of income and deductible expenses increased or decreased in 2010 or what items of income and deductible expenses will be new or obsolete in 2010. Adjust your 2009 taxable income for these estimated changes to estimate your 2010 taxable income. Compare this estimated taxable income to the 2010 tax tables. Federal tax tables can be found by clicking here. Arkansas income tax tables can be found by clicking here. Oklahoma tax tables can be found starting on page 20 of the Form 511 Packet.

If you owe taxes for 2010, there is a good possibility you will owe taxes again in 2011. You might consider making estimated tax payments for your 2011 income tax in 2011. Getting behind on your income taxes and playing catch up is a bitch. 2011 estimated income tax vouchers and instructions for your Federal, Arkansas, and Oklahoma income taxes can be found here, here and here, respectively.

Or, rather than doing any of the above yourself, you could call a certified public accountant to assist you … if you can find one that will return your call this week.

About Potts
David Potts is a certified public accountant also accredited in business valuation. Owner of Potts & Company, Certified Public Accountants for more than 25 years, his practice focuses on small and medium size businesses and their owners in the areas of taxation, accounting and bookkeeping, business valuation and business advisory services. He is a Fort Smith native and a graduate of the University of Arkansas. You can follow more of his thoughts at ThePottsReport.com. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case.

Also, feel free to e-mail topic suggestions or questions to [email protected]