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What If You
Can't Pay Your Taxes?
Even if you don't have
the money to pay your taxes, file your return on time. The penalty
for not filing your tax return on time is 5% a month, whereas
the penalty for not paying your taxes on time is only 1/2 of
1% per month.
© 1998,
by Jan Zobel, EA
You've finally finished
filling out the myriad of forms that make up that dreaded packet
called The Tax Return. You wish you'd followed the advice you'd
read to set aside money for taxes when you sold those stocks
and earned that $2,500 doing freelance work. Your tax forms clearly
show that you owe and your depleted bank account is of no help.
Now what?
Even if you don't
have the money to pay your taxes, file your return on time. The
penalty for not filing your tax return on time is 5% a month,
whereas the penalty for not paying your taxes on time is only
1/2 of 1% per month.
Each year more
than 5 million taxpayers file Form 4868, asking the IRS for an
extension. However, this is an extension of time to file your
tax return, not an extension of time to pay any taxes due. As
long as you send it in by April 15, Form 4868 is an automatic
extension, giving you until August 15 to file your tax return.
Anyone can ask for an extension; there's no need to have an excuse
for waiting to send in your return.
If you file an
extension, the IRS asks that you give a good faith estimate of
the amount you expect to owe and pay whatever you can at that
time. Interest and late payment penalties will be added to any
additional amount due. For that reason, it's best to send as
much as you can as soon as you can.
The IRS has made it easier to pay your taxes by allowing installment
payments. If you need time to come up with the money to pay your
taxes, Form 9465 (Installment Agreement Request) should be filed
with your federal return. Indicate on this form how much you
can afford to send each month and on what day you want to pay
it. There is a $43 charge to set up the installment plan.
If you owe so
much that you can't possibly ever pay it off, the IRS may accept
an Offer In Compromise, which means that you offer to pay a lesser
amount than you owe in order to settle the bill immediately.
You need to fill out a complete financial statement and present
it with the appropriate paperwork. Your offer will be accepted
only if the IRS believes it will not be able to collect the full
amount due from you within the near future. An Offer in Compromise
requires that you have available, at the time your offer is accepted,
the full amount you've agreed to pay.
Whatever method
you use to pay your taxes, the IRS will require that you remain
up-to-date with your current tax liabilities. You'll be glad,
too, next year if that pre-planning has kept you from being in
this situation again.
- The above is an excerpt from
Jan's
recently revised book,
Minding
Her Own Business: The Self-Employed Woman's Guide to Taxes and
Recordkeeping (Adam
Media Corporation) which is available for only $8.76 at
Amazon.com.
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