Falling behind on your taxes puts you firmly on the IRS radar. But don’t push the panic button yet. Whether you are an individual or an entity, you can still remedy the situation.
File under any circumstance:
If you fail to file you are bound to incur fines, however, you can control the severity of these fines.
Tax penalties are categorized into 2:
- Non-filing of returns
- Returns filed but tax due not paid.
Failure to simultaneously file and pay taxes could cost you 5% up to 25% of the balance due per month. Whereas, filing for an extension drastically reduces your monthly penalty to 0.5% until the end of the extension period.
If you are filing for a refund, there is no penalty if you cross the April 15 deadline. The IRS will continue to hold your refund amount for 3 years after which it becomes a part of the US treasury.
If your inability to file taxes is due to unavoidable circumstances like divorce, death in the family, natural disasters, etc. The IRS may remove or reverse penalties and interest if you write a letter to them explaining your situation. Be sure to mention that you are “requesting for abatement” in your letter.
Need more time… File for relief plans
Even if your financial constraint leaves you high and dry beyond the extension date… you can still find relief with the IRS. The agency offers plans to collect your tax liabilities through installments or lump sum in a process that is in the best interest of your financial situation.
- Full Payment Agreement:
This plan gives you a 120-day extension to pay your tax debts in a lump sum. There are no application fees for this full payment plan, however, interest and penalties will continue to accrue until your liability is fully paid.
- Installment Agreement:
If the IRS determines that you are unable to pay in a lump sum or within 120 days, you will be made eligible to make payments in monthly installment plans. Here too, you will continue to accrue penalties and interest. Processing fees are usually charged for long-term plans but can be waived-off under certain conditions.
- Offer in Compromise :
In this plan, the IRS may settle your tax liabilities for less than you owe. Offer in Compromise is offered to taxpayers under severe financial strife and in no position to pay their taxes. Taxpayers can be eligible for a compromise only after a thorough investigation into their reasonable collection potential (RCP) that includes their income, ability to pay, expenses, and assets owned.
Considered as an equivalent to bankruptcy, the IRS can issue a federal tax lien against your property or investments to safeguard its interest.
The bottom line…
When it comes to filing your taxes, the sooner the better… delays in filing taxes can lead to penalties totalling half the amount due. Filing late can also make you ineligible for alternative payment plans and affect your credit score while obtaining loans.
Outsourcing your tax returns to seasoned professionals at an affordable price will keep you compliant throughout the fiscal cycle and help you evade exorbitant charges levied by tax experts while filing for a compromise.