You Filed for a Tax Extension - Now What?
Like 12 million of your fellow Americans, you have filed form 4868 and requested a six-month extension and may be wondering what’s next. Below are some steps for completing your taxes and ways to avoid expensive penalties.
Filing the extension on time (postmarked by 11:59 p.m. on 4/15 in your time zone) may have eliminated the hefty 5 percent of any unpaid penalty per month up to 25% of the total, but what the extension did not eliminate is your responsibility to pay taxes. If you mailed your extension on time, the IRS will not respond with any type of acknowledgement. If you mailed the extension without your tax payment, you WILL be hearing from the IRS. Just know that the IRS expects payment regardless of tax documentation or preparation. Even if you file for an extension, you still need to make an estimated tax payment as soon as possible in order to avoid costly penalties and interest. “The goal is to pay ninety percent of what you owe before your taxes are submitted,” says Peter McMahon, owner of Peter McMahon, PC in Plymouth, MA. “If you overpay, you will be refunded the overage, but if you underpay, you’ll face a penalty.”
What if I can’t pay the taxes owed?
Just because you think you might not be able to pay your taxes, is no reason to not file. “Many times, clients will come to us, with several years of back taxes haunting them,” says Steven Feinberg, CPA of Appletree Business Servicesd in Londonderry, NH. “We see the fear and anxiety of the unpaid tax burden as they come through our doors, but after we’ve had a chance to review their tax situation and work out a plan of repayment, we also see the weight lifted. They often feel lighter and much less worried when they leave our office.”
If you can’t afford to pay the taxes you owe, the IRS offers payment plans including a short term extension to pay and long-term installment plans. “Whatever you do, don’t ignore your overdue taxes entirely,” warns McMahon. “Failure to pay can result in the IRS taking far more aggressive steps such as garnishment of wages, court appearances or even prison.” Bear in mind, that if the IRS owes you money, they won’t pay until your taxes are completed. Additionally, until all returns are filed, the three-year statute of limitations period for the commencement of an IRS audit never begins. That means that your 2013 delayed taxes can be the impetus of a 2010 audit and if the IRS finds that you actually owed for 2010, you will need to pay interest and penalties
The fine print:
The IRS advises paying what you can to reduce interest and fees, but is flexible in repayment options. Taxpayers can set up a monthly repayment option by completing Form 9465 (Installment Agreement Request) and submit it with your return. The beauty of using this form is that you can determine your own monthly repayment amount and terms. For example if you owe $4,000. You can offer to pay $225 on the first of each month. Approval is automatic for amounts owed of less than $10,000 and repayment periods of 36 months or less. For debts less than $50,000 in combined taxes, fees, interest and penalties, the process can be completed online at IRS.gov. For debts greater than $50,000, additional forms and repayment documentation must be completed and sent to the IRS. Once approved, the IRS will charge a $120 set up fee or $52 if you agree to monthly EFT from your checking account. You will continue to be charged interest at a reduced rate of .5% monthly (totaling 6% annually) which is still less than most credit cards or commercial lenders.
No matter how you decide to work with the IRS, be sure to file the appropriate forms and paperwork to demonstrate that you are making a good faith effort to pay your taxes. If you aren’t sure where your business stands, then it may be time to seek the advice of a small business accounting and tax professional.
PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.
To find a trusted accountant in your area, visit www.SmallBizAccountants.com. Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.
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