It seems that a lot of you O/O's and company Drivers wait until the last minute thinking that you are going to owe tax and want to put off the inevitable. What you do not realize is that by planning ahead and those paying estimated taxes over the year reduces the burden when you are hit with (lets say $10,000) for taxes owed and you all know that the first 2 months January and 1/2 of February are slow, so when it comes time to pay that tax owed you do not have it and have to either pay late, don't pay at all. or ask for an extension.
Well, that is why your CPA's, Accountants, and Tax preparers state that you would have to pay estimated taxes over 4 equal payments those payments are based on the tax owed for the previous years return. So if you owed $10,000 you would have to pay $2500.00 per quarter. 1st payment is due the same day your prior years tax is due. April 17, 2007, then June 15, 2007, Sept 15, 2007, and January 15, 2008, or have to go on an installment plan with the IRS.
And again you do not realize is that most of what is owed is Social Security Tax that cannot be reduced unless you show zero income on your Sole proprietorships after expenses. and you know that is just about impossible. unless your in a cargo van , but that really doesn't mean that you are not going to owe tax either.
The only ones that will probably not owe are the Newbies, the first year.. if they had a regular place of employment and they received a W=2 and tax was taken out prior to being a Driver or Owner, then the tax burden would probably be low. unless he started within the first 6 months of the year.
Here is something that a lot of driver and O?O's also do not realize,
IF YOU ASK FOR AN EXTENSION, IT WILL NORMALLY BE APPROVED, IT IS FOR A PERIOD OF 6 MONTHS AUTOMATIC, YOU NO LONGER HAVE TO APPLY FOR A 2ND EXTENSION IN AUGUST.
The only item that you are saving by having an extension filed is the the Late filing penalty of 25% of the tax owed. It does not reduce your interest and penalties which are still being added to the tax that you owe. and the rate of interest is not low, the Current rate until MARCH 31, 2007 is 8%, It could change and go up, but never down since the PRIME IS HIGHER. This is not 8% per year. its 8% per Quarter. or 32% per year if the rate stays the same. and compounded Daily, not monthy. The penalty is 1/2 of 1% also compounded daily per month.
There are actually 2 additional penalties, besides what I stated in the previous paragraph, one is for not paying the tax when due (IRS Revenue Rulings 6651(a)(2), and is for not paying the tax assessed 6651(a)(3)which is the ad on amounts.
So if at all possible try and get your information to your preparers ASAP like NOW, IF YOU OWE TAX AND THE FIRM THAT PREPARES THEM ELECTRONICALLY FILES, you will not have to actually pay until the deadline date of APRIL 17, 2007 and postmarked by midnight.
if you have any questions on this post, please do not hestitate to ask.
Frank
Franklin Katz, ATP
Frank's Tax & Business Service
226 S. Cherokee St
Kings Mountain, NC 28086
704-739-4039
Fax: 704-739-3934