This tax status may bring you woe: “I owe! Oh, no! I haven’t got any dough! So …”
This scary situation may make you want to dodge the IRS.
But, seriously, resist the temptation to skip filing. The penalty for not filing is 10 times worse than it is for paying late. And you’re almost out of time. The filing deadline is tomorrow, Tuesday, April 18.
Instead, follow these steps if you can’t pay the IRS on time.
Don’t fail to file
When it comes to income taxes, most people are rewarded for filing because they get money back.
The IRS said in its latest weekly update on the 2017 filing season that as of April 7, 103.6 million tax returns had been filed, and some 80.3 million taxpayers were getting refunds averaging $2,851 each.
But if you owe the IRS money and can’t pay immediately, file anyway! If you file something and don’t pay, your penalty will be 0.5 percent per month on the amount you owe, the IRS says. But if you don’t file anything by the deadline, the penalty is 5 percent for each month or part of a month after the due date, up to a limit of 25 percent of your total tax bill.
For example, if you owe $1,000, and file, but don’t pay, Uncle Sam will assess you $5 a month until you send in what you owe. But if you don’t file, the penalty will be $50 a month.
Consider your options
“There is always a cost to paying the IRS over time rather than when your taxes are due,” says Manny Davis, a Southern California accountant. Compare the cost of an IRS payment plan with alternatives.
Get a loan: If you can’t pay, the best solution is an interest-free loan, from friends, family or maybe your boss. Second best might be a signature loan from a source like a credit union. Visit the Money Talks News Solutions Center for more information about a Personal Loan.
Charge it: You could put what you owe on a credit card, but it will cost you: Federal payment processors including pay1040.com, payUSAtax.com and officialpayments.com charge upfront fees, plus your card issuer will charge you interest on your balance.
Buy time, sort of: If by Tax Day — and again, that is tomorrow — you ask for an automatic extension of time to file your income tax return, the IRS usually gives you two extra months — for filing, not for paying.
“An extension of time to file is not an extension of time to pay,” the IRS cautions.
However, you will avoid the late-filing penalty, it says. Additionally, IRS Form 4868, which is the extension request that can be filled out online or on paper and mailed, says that a late payment penalty will not be charged if you can show reasonable cause for not paying on time.
Make a deal: The IRS may be nicer than you think.
“We recognize that some people may be enduring financial hardship,” said IRS Florida spokesman Mike Dobzinski. “If you need to file a tax return, pay what you can, get that return in to avoid any late payment penalties and late filing penalties, and perhaps the IRS can work out an installment agreement with you.”
The IRS says you must first file all required returns and be current with estimated tax payments. If you’re an individual owing $50,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application, or complete IRS Form 9465, Installment Agreement Request. There are setup fees for various installment plans — ranging from $31 for a direct debit installment agreement to $225 for a regular installment agreement. See the details here.
Offer in compromise: You may qualify to settle your tax liability for less than the amount you owe, says the IRS. The agency considers your ability to pay, income, expenses and asset equity.
“We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time,” the IRS says.
Check your eligibility with the IRS’ Offer in Compromise prequalification tool. You may need professional help. If you go forward, the filing fee is $186; the detailed instructions and forms you need are in this IRS booklet, Form 656-B.
If you ignore tax bills …
For example, in 2015 actor Robert De Niro paid the IRS $6.4 million after the government put a lien on his New York City condo in Tribeca in connection with his personal 1040 filing for 2013, the New York Daily News reported. De Niro’s lawyer claimed the IRS had sent the Academy Award winner’s tax delinquency notice to an old address. Once alerted to the bill, De Niro paid it in full, the lawyer said.
A lien secures the government’s interest in your property. Under the IRS’ Fresh Start initiative to make it easier to pay back taxes, it is generally only when you owe more than $10,000 that a lien is filed.
If you don’t pay your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in.
Prevent a repeat
How did you get here?
Many people who owe the IRS at tax time did not have enough money withheld from their paychecks. You may want to consider filing a new W-4, the IRS says. Try its withholding calculator. Have handy your most recent pay stubs and most recent income tax return. Enter estimates if necessary. You may have claimed too many exemptions or received W-2 forms from more than one job; or perhaps you’re married, and both you and your spouse work; or the number of your allowances changed during the year.
Other top reasons noted by the IRS: You have non-wage income, such as interest, dividends, alimony, unemployment compensation or self-employment income.
Have you ever been caught flat-footed when it came to paying your taxes? What did you do? Share with us in comments below or on our Facebook page.
This article was originally published on MoneyTalksNews.com as 'Tax Hacks 2017: Can’t Pay Your Taxes? Here’s What to Do'.