If you find yourself in a situation where you are unable to meet your due taxes before the tax deadline, do not despair. There are available options that you can take advantage of to ensure that you do not agitate Uncle Sam. Here is what to do if you find yourself in such a situation:
File a Tax Return
Ensure that you file a tax return, even if you are unable to pay off the due taxes immediately. There are worse consequences if you do not file the return. Not filing amounts to more tax troubles and may even surmount to criminal implications.
Consider Various Options for Paying your Due Taxes
Once you have filed your tax returns, you need to plan on how you will pay the taxes due. Depending on the amount of taxes that are owed, you may consider the following options for delayed payments:
- Request for Short Delay – If you will have the funds to pay the taxes within 120 days, then you may call the toll-free IRS number and request for a short delay. The IRS customer service representatives handling such issues are permitted to make an interest and penalty free extension of up to 120 days if you provide a good reason for the delay.
- Installment Agreement – If the amount you owe is below $25,000.00 and you are not able to pay it all in one lump-sum, you can apply for an installment agreement under the Online Payment Agreement service available on the IRS website. You can also call the toll-free IRS number to set up this installment agreement. The installment agreement is automatic for any taxpayer who owes below $25,000.00 and you can determine the installments to pay as long as you will repay within the required period. This installment agreement also has an extra advantage – you will not be requested to provide financial statements or any further paperwork. However, you will need to pay interest on the taxes due and late payment penalties. The interest rate for tax debt to the IRS is currently at 4% and is subject to change every three months. The late fee is currently 0.25% for Installment Agreements and 0.5% for tax debts outside IRS payment agreements.
- Consider Borrowing – You can also consider taking a loan to clear your due taxes. However, you will need to compare the amount to pay if you took up a loan against making late payments through installments. Depending on your loan terms, you can check if the loan interest will amount to more than what the IRS will charge in interest and lateness fees. If the loan interest rate is less than that of the IRS’s deal, then it would be advisable to take the loan and pay off your taxes. However, if it is cheaper to take the IRS Installment Agreement, you should not be hesitant as there is no recourse to taking the agreement.
- Prioritize Between State and Federal Taxes – If you owe both Federal taxes and State taxes, you should also do a comparison of the charges to be levied if you are late on either of the taxes. You can then pay off the taxes that bear more charges in interest and late fees and place an installment agreement with the tax authority with lower charges.
- Seek Professional Help – If you owe over $25,000.00 or are still unsure about how to handle your tax dilemma, you may consider seeking help from a tax professional on what to do regarding which option to select.