Are you someone who tends to procrastinate, waiting until the last minute to prepare and file your annual income tax return? While most of us actually do have good intentions of completing and filing our tax returns on time, sometimes we simply wait too long and before we know it, time has run out, whereas some of us are unable to file our returns because we are missing some necessary information, or we are hesitate to file because we don’t have the money on hand to pay our tax bill. As the tax deadline approaches, if you find yourself in any of these situations, do you know what to do? Read on to find out what to do if you are unable to file your return on time or do not have the funds to pay your bill.
What Can I Do If I Cannot File My Return On Time?
If you are unable to file your tax return by the due date – this year’s deadline is Monday, April 18th – you should file an extension with the IRS. This is a fairly simple task process and can be accomplished in one of several different ways:
- Print out IRS Form 4868, complete it and mail it into the IRS.
- Use IRS e-file to file your extension online. You will need to either have your tax preparer file for you through his e-file program or use a tax preparation software program, such as TurboTax or TaxCut.
- Pay Your Taxes. If you need to file an extension and owe the IRS money, you should pay at least 90 percent of what you owe with a debit or credit card. To do so, you will need to call the IRS directly or make a payment through an IRS-approved service provider.
While filing for an extension is a great option for those who cannot get their income tax returns in on time, it is important to note that obtaining an extension does not enable you to pay your tax bill late. When you file for an extension, in order to avoid late payment and interest fees, you should make sure to send the IRS at least 90 percent of what you owe. If you cannot pay 90 percent of what you owe, you should still file for an extension and pay as much as you are able to, because the failure-to-file penalty is far stiffer than the failure-to-pay penalty.
What If I Cannot Pay My Tax Bill
The overwhelming nature of tax season can make simply not filing your return and avoiding your tax bill a tempting but dangerous option. Procrastinating will ultimately lead to a more costly and stressful outcome. There are quite a few alternatives available to you are unable to pay your tax bill, including:
- Find the Funds. Do you have a savings account from which you can take out the money, or a family member who can afford to lend you the funds? Can you request a personal loan from your bank? Another option, although highly discouraged, is to charge your tax bill to a credit card. Be careful with this last option since credit card interest rates can be high, so work as fast as possible to pay it off.
- Set Up an Installment Agreement with the IRS. As long as you owe less than $25,000, it is possible to obtain an Installment Agreement from the IRS by simply visiting the IRS website and filling out an agreement form. If you owe more than $25,000, you can still try to obtain an installment plan but will need to fill out an IRS Collection Information Statement before gaining approval, and the IRS may require you to liquidate some assets in order to reach the $25,000 or less dollar liability level.
- Ask the IRS for an Extension to Pay. If you know that you will be able to get the funds you owe within a short period of time of after the deadline passes, you can ask the IRS for an extension to pay. In this situation, you will typically be granted an additional 30-120 days to make payment. This is your best option if you are sure that you will have the funds to pay your bill in full within the given timeframe. You will still incur a failure to pay penalty (as with option 2 above) but you will avoid an installment agreement setup fee.
- Request an Offer in Compromise. It is important to note that these are rarely approved, and in order to receive one you will need to prove that you have no means to pay your bill regardless of whether or not you set up an installment plan. This is for special and extreme circumstances only.
Avoiding filing your income tax return is not a viable option. Not filing your taxes or paying your taxes leads to some of the highest penalties that the IRS gives out. The penalty for not filing your tax is 5 percent compounded monthly on any tax balance owed while the penalty for not paying is .5 percent a month on any unpaid balance. The IRS will catch up with you and the interest and penalty fees will be high – not to mention that delinquent taxes can destroy your credit – and the IRS can and will do what it takes to get the money, including seizing your assets.
Once you have decided what to do about your tax bill, start planning better for next year. You certainly don’t want to find yourself in this situation again.
This guest post was provided by Matt Robinson. Matt is a tax professional and tax writer. He provides valuable tax tips, news, guidance and more on his tax advice blog. His website also gives detailed do-it-yourself information on resolving tax liens, tax levies, IRS penalties and many other tax problems.
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