For many, tax filing deadlines can be a stressful time, especially if you are faced with a tax bill that you cannot pay. Perhaps you owe taxes for the first time this year or you still owe from a prior year. Here are 5 actions you must take before filing day:
- File on or before the deadline – and there are NO exceptions to this rule. If you do not file and you owe, penalties will mount. The failure to file penalty is significant and it build up fast: 5% per month, to a maximum of 25% in five months. Avoid this penalty, file on time. Many times, those who owe try to avoid the problem by not filing. Do not go this route as it will only exacerbate the problem. Also, it is illegal not to file.
- If you cannot file on time, file an extension by the deadline in April -with an extension, your tax return will be due by October 15th. Keep in mind, when you owe, a filing extension is not an extension to pay. You will still have to pay the balance on October 15th. You may have a small failure to pay penalty or estimated tax penalty, but you will avoid the larger failure to file penalty.
- If you owe and are unemployed, get an extension to pay with Form 1127-A – this extension allows you to defer payment AND penalties if you pay before October 15th. It is a must that you file this form by April 17th AND you pay your taxes on or before October 15th – or the penalties will be reinstated. If your situation does not improve, you can request that the IRS defer payment by requesting “currently not collectible” status before October 15th.
- When the IRS sends you that first balance due notice, act immediately – call the IRS or visit your local office and ask for assistance. It is best to proactively consider options as it allows you the time to gather the information necessary for your request, such as a payment deferral request from the IRS.
- Don’t forget about your State obligations – many owe this year on their State returns due to part time employment or collecting unemployment which often results in insufficient withholdings to pay the taxes at the end of the year. Again, file timely. If you cannot pay, contact the State immediately after you receive the first notice. States have been more gracious about payment plans or deferring payment if you are unemployed or underemployed. You will need to be vigilant in contacting the State about setting up your arrangement because most State Departments of Revenue are understaffed and overwhelmed. Persistence will avoid State enforcement actions on your liability.
Procrastination is not your friend in any debt situation, but especially when it comes to taxes. When you do not file, the IRS will file for you – and send you a bill for the balance they believe you owe. The return they file will not have any deductions but it will have penalties.
When you do not pay, the IRS does not act like any other creditor. About five months after the IRS asks for payment and they get no response, they will start to levy bank accounts and wages. They may even file a tax lien if you owe a significant amount.
If you owe this April tax deadline day and cannot pay, don’t expect it will go away. File on time and be proactive with the balances owed. There are many options the IRS and State governments allow to those who are experience unfortunate times.
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.
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