I Can’t Pay My Estimated Quarterly Taxes. – Heather

“Dear Jim,

I’m a freelancer who recieves a 1099 and pays estimated quarterly taxes but last year I was unable to keep up with my payments due to medical bills and other hardships. I do not think I will have enough to pay my 2011 taxes owed by April 15th, as well as, paying my 1st quarter 2012 estimates. I prefer not to fall behind on my 2012 payments and postpone paying what is owed for 2011.

Is there a way to get an extension on last years taxes owed? Or should I not file last year until I’m in a better financial situation and have the money to pay? If u don’t file 2011 but file/pay my 2012 estimates will this cause a problem such as auditing?

Heather”

Heather:

Thank you for your questions. Let me address them individually.

Question #1: Is there a way to get an extension on paying the taxes owed for last year (2011 return filed by April 15th, 2012)?

There are several ways to get an extension depending on your circumstances. Also, if you cannot pay, the IRS will allow you a payment arrangement. Let me explain both.

There are several extensions to pay based on your circumstances:

Hardship extension – if you cannot pay your taxes by April 15th and you are either:

• Wage earner who has been unemployed at least 30 consecutive days between January 1, 2011 and April 15, 2012; or
• Self-employed individual whose 2011 business income decreased 25% or more due to the economy (as compared to your 2010 business income)

You may request a six-month extension to pay by October 15th. The IRS will also waive your penalties for failure to file if you qualify for this extension.

More about this relief can be found here.

120-day to full pay – if you cannot pay, you can request an extension to pay when you receive your first bill from the IRS. The IRS will allow up to 120 days to full pay the amount owed. You will still be charged the failure to pay penalty.

You can also request a payment plan with your return. If you owe less than $50,000, the IRS will allow you to request an installment agreement to pay. The IRS will allow up to 7 years to repay the amount owed. This is called a “streamlined installment agreement.” You can send in a Form 9465 with your return to request this arrangement.

Question #2: Should you not file until you situation improves?

This is never a good solution. You will incur significant penalties by not filing. File before the return is due. You can make arrangements to pay based on Question #1.

Question #3: If you file and cannot pay 2011, but pay 2012 estimated taxes, will this cause a problem at the IRS?

Actually, it will cause you less problems. This is because you will not owe in a future year. When you get into a payment arrangement, the IRS will want to make sure you do not owe again in future years as owing again in future years will “default” the payment arrangement. Pay the 2012 estimated taxes without worry.

Many people file and owe. The IRS has installment agreements that allow you to repay. The most important item is to file timely and proactively set up a payment arrangement or extension.

I hope this helps.

Thanks

Jim

Jim Buttonow is one of the resident debt experts here at GetOutOfDebt.org that helps people for free. Jim is a licensed CPA who spent 19 years with the IRS coordinating large compliance teams of IRS agents and specialized personnel. In the last 5 years, Jim has invented consumer and practitioner software and treatises on how to address many different tax issues. He has also represented many people before the IRS examination, collection, filing, and appeals functions. He currently assists taxpayers on an active pro bono tax practice aimed at serving people in need. He can be reached at IRSMind.com.

If you have a tax question you’d like to ask just use the online form. I’m happy to help you totally for free.