A while back, maybe in March, I heard an interview with the new Director of the IRS on NPR. He seemed like a nice enough guy, and basically said the IRS was going to cut people some slack this year due to all the economic upheaval. Even if you couldn’t pay your taxes, you were encouraged to send in your return and work with them on a plan, or maybe they could find you some credits to help out. Sounds great, in theory :)
Well, this year I had a little problem with my taxes, as in underpaying them. Last year, I decided to start using the annualized income method, which a complicated way of calculating your quarterly estimated taxes. Normally, you have to pay the same amount each quarter, based on what you earned last year. But my income varies so much from year to year and from quarter to quarter that that just wasn’t working for me. I kept guessing wrong and overpaying or underpaying substantially.
So, I started using the horribly complicated form each quarter and carefully filled it out, basically like doing your whole taxes every quarter. Still, I felt good that I was paying the right amount as I went along, and at the end of the year it would all work out right. NOT. You see, I made sort of a basic, unrelated mistake. In the middle of the year I moved and got new bank accounts (but still had the old ones). I downloaded those into Quicken and started directing a lot of my payments into them. But forgot to add them to the automatic reports I was using to calculate my taxes (OOPS!). So, I underpaid for the 3rd and 4th quarters and owed a penalty at the end of the year.
SIGH. In early April I sat down to do my taxes, paid the unpaid amount, and then worked on the form to calculate the penalty. Because I was using annualized income, the IRS couldn’t do it for me – so I had to do all four quarters ALL OVER AGAIN. Nevertheless, at the end, I found I only owed about $60 in penalty. Yay! Mostly because the error was late in the year and the interest on the unpaid amount wasn’t that much.
Remembering the NPR interview and at a friend’s urging, I included a note of apology and an explanation of how I had managed to underpay my taxes. Yesterday, I got something from the IRS. This always makes me a little nervous, as any small business should at even the remotest possibility of an audit. But lo and behold, it was a check in the amount of my penalty payment. Apparently they took my good faith and attempts to do the right thing into account, and gave me a break. It’s not that much in terms of dollars, but it feels like a nice gesture anyway. So thanks, IRS!