The end of tax season is near, and while some may soon be delighted to receive a substantial refund check in the mail, others won’t end up so lucky.
Tax filings bring taxpayers and businesses one of two results: a refund, or a bill.
A refund means that you’ve essentially provided the government an interest-free loan for a while, so retooling your tax situation with the help of a tax professional is a good way to stop your unknowing role as a government lender.
But if you have a tax bill due, there are no easy or quick fixes to have it vanish into thin air.
Tax bills for people or businesses arise for a variety of reasons: eligible deductions or credits aren’t obtained and used, the wrong tax status may be reported, or income may have been under-reported.
A tax bill could also wind up as the result of an IRS audit, but that’s an issue that’s best addressed by the advice and assistance of a tax attorney.
If you have a tax bill and can’t make the payments, knowing your options is half the battle.
For starters, taxpayers can request an extension to file their returns.
By filing IRS Form 4868 before April 15, taxpayers can get an additional four months – until August 15 – to file their returns. Filing a Form 4868 can be done on paper or online, and no signature, or reason to give the IRS, is needed.
You’ll still have to estimate your tax bill, and the extension only gives taxpayers an extension of time to file – not an extension of time to pay.
That means you’ll be subject to a 0.75 monthly interest on the tax bill. But not filing an extension when you know you owe can be costly, as the monthly interest accrues at 5 percent a month and can reach as high as 25 percent of your total tax bill. For your own financial benefit, filing a Form 4868 is the way to go.
If after obtaining an extension you’re still unable to pay your tax debt, the next step is to get an IRS installment plan.
To do this, file IRS Form 9465 with your return. It can be filed either by April 15 if you don’t get an extension, or by August 15 if you do.
For the installment plan terms, you’re in the driver’s seat as long as you’re reasonable. For example, paying $300 a month on a$5,000 tax bill is a realistic offer to make. If the total back tax debt is less than $10,000 and you want to get rid of it all in less than three years, the IRS is likely to approve it. If it’s more than $10,000 and the pay period exceeds three years, you’ll have to provide information on your finances.
Installment plans come with a reduced rate interest charge of 0.5 percent a month, and a setup fee of $52 or $120 depending on whether you sign up for automatic payments. But it can lessen the blow received when the tax bill is calculated.
Making it to April 16 can be a relief, but if the day before is too much to handle, knowing your options if you can’t afford to pay your tax bill is essential for clearing up back tax debt.
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