Tax Solutions for Creatives

THE BENEFITS OF FILING AN EXTENSION

 Ignore the old husbands' tale that filing an extension triggers IRS computer screens to flash "Audit this return!" Not so. An extension gives you more time to collect and review your material. And, even if you have your return completed by the end of February, it's better for you to hold that return for a little marination.

Here's why: Most taxpayers think there is only one way to prepare a tax return. Tax pros know that income and deductions can be treated in a variety of ways. If your tax preparer understands the self-employed life, she is equipped to make choices to your tax advantage. And many of her choices for your 2010 return may depend upon your income and expenses in 2011. The later into 2011 the more you'll know about 2010. For instance, a substantially higher income in 2011 than in 2010 may warrant a fuller deduction in 2011 for equipment purchased in 2010. Or, with a high 2010 income you may want to make a hefty contribution to your self-employed pension. If you don't have the money right now to put into that pension, an extension gives you until October 2011 to come up with your 2010 pension contribution.Take your time and talk with your tax professional about creating a favorable tax scenario.

HOW DOES AN EXTENSION WORK?
Tax returns are due April 18. The IRS offers you an extension that gives you until October 17 to file your return. You may also need to file a state extension.

Be aware that an extension gives you more time to file your return - but does not give more time to pay your taxes. Your taxes for 2010 are due by April 18, 2011.
   

Automatic Extension Form 4868  must be filed by April 18. You can file online, by phone, or by mail. If you file an extension you have until October 17 to file your return.

To complete the extension, estimate your total tax liability for 2010 using tax returns of previous years as a guide. For instance, if you made 25% more in 2010 than in 2009, pay at least 25% more in taxes. If you made less, pay less. It's best to overestimate the tax you'll owe.

Pay the balance due or as much of it as you can. If you can't pay the full balance due when filing your extension, or if you underestimate your tax liability, you will be charged penalty and interest on the amount owed when you file your return. Always file an extension, even if you cannot pay the full balance due.

And, come return filing time, if you still don't have the money, don't file your return late. File on time and you can pay your tax later. If you file your return late, in addition to any late payment penalties and interest you could also be hit with a late filing penalty.

Some anxious people rush to pay their income tax by taking cash advances on credit cards. That's a foolish move. MasterCard and Visa finance charges are higher than Uncle Sam's.

Federal extension form 4868 can be downloaded here.

You can get most state extensions on line. Search by your state name and the words "tax return extension." 

You might want to check this post:
 Receipts a mess? Don't know which way to turn and it's almost April 15th! 

Or, check out the info on The Confident Indie:. It has worksheets to help with your 2010 tax return.

 Best,

June
 

june@junewalkeronline.com

Ways Through the Maze