In prepping for filing my extension for my family’s 1040, I always have to do the following:
- add up how much I made last year: this involves pulling out all my 1099 forms and totting up the total amount. I just barely cracked into six figures for 2008.
- dig up total payments to the IRS for the current tax year: this means jumping into my checkbook register or its electronic equivalent and finding all checks made out to the IRS for that particular tax year. I found a carryover from 2007, plus April 08 and January 09 1040-SE payments, for something in the same neighborhood that I paid them last year (this is always a good thing, according to my CPA, because it shows consistency)
- as a sanity check, I add up the 1099s I paid to others (just over $30K for 2008, in my case), do a rough comparison of the previous and current year’s overall business expenses (about the same for 2007 and 2008), and also provide numbers for IRA and Medical Savings payments for the current year as well. Looking at percentages based on the ratio of income and social security tax paid for that year versus total income and adjusted gross income for those two years lets me know if I’m in the right ball park or not.
Why do I do all this and not file my taxes at the same time? Even though the work involved in finishing my info gathering for the hand-off to my accountant seldom takes more than one or two additional days to complete, there’s something about an extension that really works for me. While I was growing up I watched my Dad sweat through at least one, sometimes two, all-nighters every time tax season came up and resolved I wouldn’t get myself in that kind of lather later in life. So far, so good: as long as you can show the IRS that you’ve paid everything you owe them by Tax Day (I set things up so that I usually get from $1-3K back, which I always roll over for the next year’s tax payment), they don’t seem to get too bent out of shape by late filings. Thanks to years of practice, and a well-worn Excel spreadsheet that my CPA and I pass back and forth between each other, all is and remains well.
What’s not so hot is that my income is on a downward trend over the past three years. I’m learning to live on reduced means, but gosh, it’s certainly no fun for anyone involved, especially my wife and son, who have to put up with the situation without really contributing much coming, though we’re all involved in the going part. I see it as just one more sign of a strained economy and a fraying safety net that we’re coping with only slightly lower costs for food and energy, while also dealing with an income stream that’s down by as much as one-third in some months from what it was in 2006.
Such is life in general, but even more so in particular for the “itinerant self-employed” like myself. Have any tax stories to share? Any good coping strategies for up-and-down-income? Please post your thoughts, and share them here!
Happy Tax Day!!!