Reminder That You’ve Got Options If You Can’t Pay Your Taxes

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From the California Society of Enrolled Agents

SACRAMENTO, Calif., April 9 /PRNewswire-USNewswire/ — With less than one week to go to the dreaded April 15 tax deadline, David Shaw, EA, President of the California Society of Enrolled Agents, reminds procrastinating taxpayers that they have options if they can’t pay their state/federal tax bill in full – and some options are much, much better than others.

“The worst possible choice, unfortunately, is the one opted for by many taxpayers – do nothing, don’t pay, don’t file,” he says. “This is a terrible decision and a big mistake – it’s not worth the aggravation and certainly not worth the heftier tax bills you’re going to incur as a result.”

Mr. Shaw offers the following advice to taxpayers who can’t file their returns on time, or can’t pay on time:
–  File an Extension. A request for a six-month extension of time to file
a tax return will automatically be granted by the IRS (use Form 4868).
Remember, the tax liability must be properly estimated at the time of
the request, because you could incur extra penalties by estimating too
low.
–  Request an Installment Agreement. The IRS will usually approve an
Installment Agreement for taxpayers who owe less than $25,000 and who
are current with their other taxes. Use Form 9465 to request an
Installment Agreement; be sure to indicate the amount of your proposed
monthly payment and the date each month you wish to make your payment.
The Agreement covers payment of the balance due plus penalties and
interest for a period of up to five years. The IRS charges a nominal
fee for setting up an Agreement.

Whether or not you file an extension, you are still responsible for any taxes owed but not paid by April 15, including penalties and interest. Here’s the big difference, though: If you file late without an extension, you’ll owe an additional five percent per month of the balance due (up to a maximum of 25%) on top of the interest. With an extension, however, the penalty for late payment is much less, only one-half of one percent per month. With an installment agreement, it’s even less, only one-quarter of one percent per month.