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Your taxes are due every year on April 15th. Do you have your taxes done? There are many reasons you may not have your taxes filed by the deadline. If you’re not finished with your taxes, make sure you file an extension with the IRS.

Why Should You File an Extension?

If your taxes aren’t finished by April 15th (or the end of your fiscal year), you may face a penalty.

I’m Expecting a Refund

If you’re expecting a refund then there is no penalty for late filing. That’s right, if your getting a refund, like a majority of Americans, Uncle Sam and the IRS will be happy to hold on to your refund until you get around to filing your taxes.

I Owe Money

If you have a balance due (you owe the government money) the IRS's attitude isn't so lenient. The government wants its money. The IRS, however, will penalize your for late payments, not necessarily late filing. Your maximum penalty is 25% of your balance due. This could be a lot or a little depending on how much you owe the IRS.

The IRS charges you .5 percent each month that you are late up to the maximum of 25%. You’ll also owe interest on the money. In 2007 the interest rate was 8%.

You can avoid the penalty as long as pay your estimated tax by April 15th, even you if don’t file a tax return. The estimated tax is paid along with application for automatic extension.

Filing an Extension

You can use IRS Form 4686 - Application for Automatic Extension to file for an automatic extension. You will have to estimate your taxes when you file for an extension. If you qualify you will get an automatic 6 month extension.

What if I can’t Pay

You have a few options if you don’t have the cash to pay the IRS by April 15th.

Credit Cards

You can use a credit card to pay your taxes. Usually a third party accepts your credit card payment and then remits your payment to the IRS. These companies usually charge a fee (called a “convenience fee” or something similar).

Loans

You can take out a loan to pay your taxes. Banks and personal finance places can loan you the money for taxes just like they would for a car or appliances. You have to qualify for the loan of course. Keep in mind a loan can take some time so make sure you plan ahead.

Pay by Installments

You can ask the IRS for an installment plan. You have to file IRS Form 9465 – Installment Agreement Request. If you owe more than $25,000 the IRS may want a closer look at finances including assets (what you have), liabilities (what you owe) and cash flow (what’s coming in and going out).

An installment plan is essentially a loan from the IRS. The IRS charges fees and interest just like a bank. This should be your last resort, try a credit card, loan or borrowing from relatives first.

Negotiating with the IRS

If your situation is dire then you may be able to negotiate with the IRS. The IRS may negotiate when there is evidence you won’t be able to pay your tax bill. Also the IRS may negotiate if there is a question about the correctness of the tax return or if the payment causes an extreme hardship.

You can use IRS Form 656 – Offer In Compromise Package to try to negotiate a settlement.

Get an Extension on Your Balance Due

If your really can’t pay then you can file for an extension of payment with the IRS. You have to show that the payment would cause an extreme hardship and that you don’t have the money to pay. You’ll also have to give the IRS a list of your assets and liabilities (what you own and what you owe).

Use IRS Form 1127 - Application For Extension Of Time For Payment Of Tax to file for an extension on your tax payment.

Make Sure You Do Something

There is no statute of limitations on tax liability. If you owe the government money, the IRS can always come get it.

Make sure you file for extensions or fill out the proper form for your situation. Don’t ignore it. The IRS and the US Government aren’t going anywhere.

Stimulus Payment

Remember, you have to file your taxes to qualify for the stimulus payment. Take a look at my previous article on the stimulus payment for details.

Tags    IRS    Stimulus Payment    Taxes

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