The tax deadline is still more than a month away, but it’s approaching quickly. If you think you’ll have trouble completing and filing your taxes on time, remember that it’s crucial that you request and extension rather than not filing and hoping the government doesn’t notice.
If you need more time to file your taxes, you can submit Form 4868 for a six-month extension. You can learn more about extensions on the IRS website.
What do you do if you’ve completed your tax returns only to find out that you owe way more to Uncle Sam than you were expecting – or worse, that your tax bill is more than you can possibly afford to pay right now? Don’t worry. If this is the case, you’re not alone… especially in today’s economy. And, more importantly, you’re not going to jail just for being a little short on cash.
Rest assured, the IRS only seeks criminal charges for those who the agency can prove intentionally chose not to file and pay taxes. So, even if you can’t pay your bill right away, file your return on time, and not only will you stay off the IRS’s bad side, you’ll avoid some hefty financial penalties in the process.
Penalties and Interest Charges
According to the IRS, the penalty for filing late is generally 5% per month, or up to 25% of the total tax amount due. Not to mention interest charges, which the IRS changes quarterly. This interest applies to the unpaid balance, penalties, and to any interest that has been charged to the account as well.
If no effort is made to pay back-taxes, the IRS can impose stricter penalties, including levying bank accounts, wages, other income, or taking other assets like houses and cars. A Federal Tax Lien could also be filed, which could ruin your credit history for years to come.
The penalty for filing on time but paying late, however, is much lower. If you choose an installment plan to pay your debt, interest will accrue on the unpaid debt amount only. Therefore, when you file your return, pay as much as you can to help cut down the penalties.
If you absolutely cannot pay any part of your tax bill, the IRS may temporarily delay collection until your financial situation improves, although interest and penalties will accrue throughout this time. But this extension is reserved for what the IRS calls “significant hardship.” Your best bet is to talk to a CPA or tax professional if you cannot pay any part of your tax bill.
Whatever you do, DON’T just ignore the bill and assume the government will forget about it. Assess the situation, seek help from a tax professional, and make a plan to address the situation.
Q&A – DIFFERENT TAX DEADLINE
QUESTION: This year, instead of your taxes being due on Friday, April 15, you’ll have a few extra days to complete and file your taxes. That means your tax filing isn’t due until Monday, April 18, 2011. But why was it changed?
ANSWER: The three extra days have been added because of Emancipation Day, which is a little-known Washington, D.C. holiday that celebrates the freeing of slaves in the district. The holiday actually falls on Saturday, April 16 this year, but will officially be observed on Friday, April 15. As a result, the IRS pushed the filing deadline to Monday, April 18 – since the tax code states that filing deadlines can’t fall on Saturdays, Sundays or holidays.
Despite this short extension, the filing deadline is approaching quickly. Don’t wait until the last minute to get your paper work in order. And remember to ask a tax professional for help on complex rules or deductions.