As Tax Day approaches, many taxpayers may find themselves in a situation where they are unable to pay their taxes by the April 15 deadline. While getting a tax extension may seem like a good solution, it’s important to note that an extension does not give you more time to pay. This is a common misconception that can lead to increased penalties and interest charges.
Even if you are unable to pay your taxes in full by the deadline, it is crucial to still file your return by April 15. The failure-to-file penalty is 5% of your unpaid taxes per month, capped at 25% of your balance due. In comparison, the late payment penalty is only 0.5% per month, with a maximum fee of 25% of unpaid taxes. By filing your return on time, you can avoid the more severe penalties associated with failing to file.
If you find yourself in a situation where you cannot pay your taxes in full by April 15, the IRS offers various payment options to help you manage your tax debt. These options include short-term and long-term payment plans, depending on the amount you owe.
– Short-term payment plan: This option is available if you owe less than $100,000, including tax, penalties, and interest. You have up to 180 days to pay off the balance in full.
– Long-term payment plan: If your balance is less than $50,000, you can opt for a long-term payment plan. You must pay monthly, and you have up to 72 months to pay off the balance.
You can apply for a payment plan online, by phone, or by mail using Form 9465. Experts recommend the online option as it is quick and easy. However, it’s important to note that you cannot have multiple payment plans from different tax years. The IRS is looking to get taxpayers back into the system, but they do not want individuals on continuous payment plans.
Although you will still accrue interest and late-payment penalties after April 15, the failure-to-pay penalty is reduced by half under an installment agreement. This can help you manage your tax debt more effectively and avoid further financial strain. It’s important to familiarize yourself with the IRS payment plans, including setup fees and payment options, to make an informed decision.
If you are unable to pay your taxes by the April 15 deadline, it is essential to file your return on time and explore payment options with the IRS. By addressing your tax debt proactively, you can avoid additional penalties and charges, and work towards resolving your tax obligations in a manageable way.
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