Sunday, April 17, 2011

Can't File Your Tax Return or Make Your Tax Payments on Time?

If you can't meet the April 15 filing deadline, here's what you need to know:
  • An extension allows you extra time to file but is not an extension of time to pay a balance due.
  • File a Form 4868 by April 15 to extend the filing deadline to Oct. 15. You should also estimate your tax liability and pay as much of it as you can before April 15. If done electronically, the IRS will acknowledge receipt of the extension request.
  • If the return is done but you do not have funds to pay a balance due, do not request an extension. File your return on time and pay as much as you can. By paying as much as possible now, the amount of penalties and interest owed will be less. You will be billed for the remainder of the amount you owe. 
  • To request a payment plan, include a Form 9465 with your return. This arrangement allows you to make monthly payments after a one-time fee of $105 (reduced to $52 if you make payments through Direct Debit from your bank account). If you already have an installment agreement from a previous tax debt and your financial situation has changed, the IRS may be able to modify or restructure your installment agreement to include additional amounts owed into one agreement. Additionally, a Collection Information Statement may have to be completed to further illustrate your financial situation. If an installment agreement is modified, reinstated or restructured, a $45 user fee may be charged.
IRS penalties for late and payment and late filing:
  • Failure-to-Pay on time penalty: usually .5% of any tax not paid by April 15. Maximum is 25%
  • Failure-to-file penalty: charged if the return is filed after the due date usually 5% of the tax not paid by April 15. The penalty accrues monthly with a maximum of 25%.

Finally, it is important to respond to an IRS notice. If you do not pay your tax liability in full or make an alternative payment arrangement, the IRS is entitled to take collection action.

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