If you can’t afford to pay your taxes by the filing deadline you are not alone. If you don’t have the money to pay your taxes on time you are far better off to file your return on time and don’t pay the taxes owed or file a request for an extension than not file a return at all.
As stated in a previous blog, not filing your return will cost you an additional 5% penalty of unpaid tax each month. This penalty is far worse than the additional 0.5% penalty each month you get for filing on time and not paying what you owe.
The failure to file penalty will max out at 25% of your unpaid taxes which you will reach if you don’t file for 5 months. However, the 0.5% failure to pay penalty will continue to accrue up to another 25% of what you owe until the tax is paid.
If you don’t file a tax return by Monday April 15, 2019 or don’t file for an extension, then the 5% penalty for not filing starts April 16th . The IRS charges interest on the taxes you owe and they charge interest on the penalty fee for not filing.
If you don’t have the money to pay your taxes the 3 best options are:
1) Request an extension to pay by October 15, 2019.
You can request an extension by:
- Use the IRS’s free (irs.gov) website located here: https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free
- Use your tax software to file from 4868 (if it has the capability)
- Paper file form 4868
- Authorize a tax pro to request the extension for you.
- Call the IRS (not recommended, online is a better approach)
2) Request a streamlined installment agreement (if you owe < $50K and can pay in 72 months)
An installment agreement is a payment plan. It is called “streamlined” because the agreement takes significantly less paper work than if you owed more than $50K or needed more than 72 months to pay it.
You can request a streamlined installment agreement by:
- Use the IRS’s free (irs.gov) website located here:https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free
- Authorize a tax pro to request the installment agreement for you.
- Call the IRS at 1-800-829-1040 (not recommended, online is a better approach
3)Request a NON streamlined installment agreement (if you owe >$50K or can’t pay in 72 months).
The Non streamlined installment agreement requires you to provide additional documents (Form 433-A or Form 433-B) to the IRS showing your full financial situation. The IRS will use these additional documents to determine how much you can pay from a combination of equity in your assets and from monthly installment agreements.
If you are in a situation where you owe >$50K an option to consider that could reduce the paperwork burden is to use your assets to reduce your tax bill to <$50K and then set up a streamlined agreement for the remaining balance.
Sometimes these penalties and interest can be abated or removed. Contact me to learn more about how that is possible. If the IRS has contacted you for an audit or if you have not filed back returns then I can help you. I am a tax debt resolution specialist and am licensed to represent you before the IRS