The April 18 deadline to file your tax return is fast approaching, which means taxpayers have two options: send out your 2016 return to the IRS by the deadline or file for an extension by that date.
But what if you don’t have the funds to cover what you owe? What if you can’t pay your tax bill?
If this is the case, the good news is you have some options. But you need to make sure you stay on top of the situation to avoid costly penalties. Here’s what you should do.
The IRS recommends that if you can’t pay the amount you owe in full, you should still file your return by the April 18 deadline and pay as much as you can. Then, contact the IRS at 1-800-829-1040 to discuss your payment options.
Get an Extension
The IRS will automatically approve applications for a six-month filing extension to Oct. 17. All you need to do is file Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) by April 18 and you’ll buy yourself some time. The form is very easy to fill out, and what’s more, you don’t need a reason to ask for an extension. Just make sure that you accurately estimate your 2016 income tax liability and any amount still owing.
You can also enter an agreement with the IRS to pay your tax bill in installments by filing Form 9465 (Installment Agreement Request) with your 2016, either on April 18 or by Oct. 16 if you get an extension. These agreements allow you to suggest your own terms, so if you owe $2,000, you could offer to pay $100 on the first of each month. Take note that installment agreement requests will be considered only if you owe less than $50,000 as an individual including all penalties and fees. Furthermore, you’ll be charged interest on your outstanding balance at a rate of .25 percent a month. While that’s a lower rate than what you would pay elsewhere, you still want to be sure that you pay off your bill as soon as possible. More information is available at https://www.irs.gov/individuals/payment-plans-installment-agreements.
If your bill is manageable enough, you can also pay with a credit card, as the IRS accepts Visa, MasterCard, Discover and American Express. But before taking this option, do your homework. What kind of interest rate will your credit card company charge? What sorts of fees will you incur? Compare costs and see if the installment agreement is a more financially sound choice.
What happens if I just don’t pay?
You need to pay your taxes, period.
Owing the IRS is no fun, and you won’t get away with it. Letting back taxes mount up will cost you significantly more money in the long run, and it can seriously damage your credit.
What’s more, if you let the situation get truly bad – usually owing somewhere around $10,000 – the government can put a lien on your house and tank your credit score. Interest can pile up, property can be seized, wages can be garnished.
In short, pay your taxes.
If you have any questions or need more information or assistance, call us at 703-553-1099.