SmartMoney<\/em><\/p>\nSay your overall cash-flow situation is good, but you need to
\ncover a short-term deficit over the next few months. In today’s still-strict
\ncredit environment, taking out a loan may not be much fun. It may not even be
\npossible — unless you have access to an untapped home equity line of credit or
\na helpful relative. If that’s the case, great. If not, you may be able to turn
\nto a surprising source for some help: the taxman.<\/p>\n
If you’re self-employed, an investor or someone who lives off Social Security
\nbenefits, pension payments, retirement account withdrawals, and the like, you
\ncan apply for loan from the Internal Revenue Service. Better yet: To borrow
\nfrom the IRS, you don’t have to fill out any annoying applications, prove your
\nincome or fence with a balky loan officer. While this may sound too good to be
\ntrue, it is true. Read on for the details.<\/p>\n
Increase Cash Flow by Temporarily Postponing Estimated Tax Payments<\/strong><\/p>\nWhat you do is simply postpone some federal income tax payments that you would
\notherwise make to the IRS via estimated tax installments. You don’t need the
\ngovernment’s permission. You just do it and then make up the difference later.
\nOf course, the IRS will charge interest on the difference between what you
\nshould have paid in for each installment and what you actually paid. However,
\nthe current interest rate on estimated tax underpayments is only 3%. While the
\nrate can potentially change each quarter, it will probably remain at a
\nreasonable level for a while.
\nThe IRS calls the interest on estimated tax underpayments a
\n“penalty.” But since the current interest rate is only 3%, it’s not
\nreally a penalty. In fact it’s actually a pretty good deal for someone with a
\nshort-term cash crisis. I’ve been there myself a few times, and I’ve done the
\nborrow-from-the-IRS drill. (Please don’t tell my Mother!)<\/p>\n
Note: If you are a salaried employee, you must pay in federal income taxes via
\npayroll withholding. You may be able to adjust the withholding downward a bit
\nfor the rest of this year by turning in a revised Form W-4 to your employer.
\nHowever, the strategy of borrowing from the IRS is basically unavailable to
\nyou. Sorry.<\/p>\n
Estimated Tax Payments in a Nutshell<\/strong><\/p>\nThere is no federal income tax withholding on income from self-employment
\nactivities conducted via sole proprietorships, partnerships, or LLCs. Nor is
\nthere generally any required federal income tax withholding on interest income,
\ndividends, capital gains, Social Security benefits, pension payments, or
\ntaxable retirement account withdrawals. Instead folks with income from these
\nsources are expected to make four installment payments of estimated taxes for
\neach year. The installments for the 2012 tax year are due on Apr. 17, June 15
\nand Sept. 17 of this year, and Jan. 15 of 2013. Obviously the first date is now
\nin your rearview mirror, but the next three are still in the future. So you can
\nwork with the installments due on those dates by paying in less than you owe or
\neven nothing at all.
\nAs mentioned, you will be charged interest based on the difference between the
\namount you should have paid in for each installment and the amount you actually
\npay for as long as the underpayment remains outstanding. The amount that you should
\npay in for each installment generally equals the lesser of: (1) 22.5% of what
\nyou expect to report on your 2012 Form 1040 for total federal income and
\nself-employment taxes or (2) 25% of what you reported on your 2011 return
\n(27.5% if your 2011 adjusted gross income was over $150,000).<\/p>\n
Make Sure to Catch Up by April 15, 2013<\/strong><\/p>\nBorrowing from the IRS in this fashion is only a short-term fix. By no later
\nthan April 15th of next year, you must catch up for any estimated tax payment
\nshortfalls for the 2012 tax year. If you don’t, the IRS will start charging
\nadditional interest of half a percent per month on the shortfall–which equates
\nto a 6% annual rate. That 6% is on top of the “regular” interest
\ncharge, which is currently only 3%. So you could be looking at a rate of 9% or
\nmaybe more. In any case, owing the IRS for 2012 taxes after April 15th of next
\nyear is just not a good position to be in. So, if you are not ready, willing,
\nand able to pay up by that date, please pretend you never saw this article.<\/p>\n
One last thing: you don’t have to wait until April 15th to catch up. You can do
\nso as soon as you are able. For example, say you decide to skip your 6\/15\/12
\ninstallment. You can catch up by doubling your 9\/17\/12 installment. The sooner
\nyou catch up, the less interest you will owe.<\/p>\n","protected":false},"excerpt":{"rendered":"
You may be eligible for a loan from the taxman — and at a decent rate. Here’s what to consider. By Bill Bischoff | SmartMoney Say your overall cash-flow situation […]<\/p>\n","protected":false},"author":88890,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-180","post","type-post","status-publish","format-standard","hentry","category-business"],"yoast_head":"\n
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