If you’re a business owner and you think absconding with the IRS’ money is the best way to avoid paying taxes, we’d advise you to seek a legal and less dangerous root because that path is quite steep. Skipping the tax deadline is one of the biggest mistakes you can make because it has huge consequences. What happens if you miss your tax deadline?
Does Irs Give Extensions To Pay Taxes?
Whether you file on time or request an extension, you still need to pay the taxes you owe when it’s due. The IRS has said taxpayers must pay taxes by April 18 to avoid penalties and interests on the amount owed after the tax deadline. With over 143 million taxpayers to cater to, you’d think Uncle Sam would be too busy to notice if you fall short on payment. The IRS issues about 40 million penalties each year. For one, the penalty for failure to file is 5% of your unpaid balance per month, a total of 25% plus interest. On the other hand, the penalty for late payment is 0.5%, levied monthly and capped at 25% with interest.
How Many Extensions Can You Get To Pay Taxes?
If you need an extension, you can request an additional six months to file your individual income tax return. However, you must request an extension to file before the tax deadline to avoid penalties. Here are three ways to file your taxes.
- Pay all or part of your estimated income taxes and indicate that the payment is for filing an extension using IRS Direct Pay: The Electronic Federal Tax Payment System, a credit or debit card.
- E-File Form 4868 (Application for Automatic Extension of Time to File Individual Tax Return) online with a copy of your tax return for prior years.
- File a paper Form 4868.
As a U.S. citizen, if you are out of the country, you are allowed an extra two months (until June 15) to pay any due taxes without requesting an extension.
Is There A One-Time Tax Forgiveness?
If you’ve been unable to pay your tax debt because you missed the tax deadline, you must be scared of the penalties and interests that are bound to add up. The good news is that there’s an IRS program called the one-time tax forgiveness (Also known as penalty abatement) that allows you to waive your tax penalties if you’ve made an error filing or failed to pay your income tax return on time. There are three ways to seek one-time tax forgiveness:
- First-time penalty abatement: if you got a penalty for the first time, don’t give up yet. The IRS gives a first-time penalty abatement to individuals and business owners to cover first-time penalties. This is your one-in-a-million chance to provide logical proof to the IRS for not filing or paying your taxes on time.
A penalty abatement can remove or reduce your tax penalty if you meet the following criteria:
- You’ve filed all your tax returns
- You’ve paid your outstanding tax bill or arranged with the IRS to pay in installments.
- You’ve not had a tax penalty in the past three years.
- Reasonable cause: If you missed the tax deadline and don’t meet the criteria for first-time penalty abatement, the IRS may still way your penalties and fees if you request under reasonable cause. Some examples of a reasonable cause include:
- Inability to obtain records
- Fire or natural disaster
- Serious illness, incapacitation, death,
- Unavoidable absence of the taxpayer or a member of his immediate family.
- Statutory exception: if you received erroneous information from an IRS representative and got a tax penalty, you can request a statutory exception. To request a statutory exception, you’ll need to file form 843 (Claim for Refund and Request for Abatement) for penalty relief. The form should include your request for advice, the mistakenly written advice you were issued, and the amount of taxes and penalties you incurred due to the IRS advice.
What About The Interest?
So if missed the tax deadline but got your penalty forgiven, what about the interest? If your penalty increases monthly and accrues interest, your tax debt may grow from hundreds to thousands of dollars. The IRS starts charging interest from the day your tax penalty is due, and it continues to grow until your tax and penalty are fully paid.
This is why it is better to work out any complication related to your tax return with the IRS before the interest gets too much to bear.
Are There Tax Relief Options Available?
If you miss the tax deadline and you don’t qualify for one-time tax forgiveness, there are other options to explore. The IRS offers alternatives to settle your tax bill with the Fresh Start Program. This program eases your tax burden by providing affordable payment agreements.
If you don’t qualify for the one-time tax forgiveness, you could explore these options:
Installment agreement: if you can’t pay your tax debt in full, the IRS provides a 72 months repayment period that makes it easy to cover your taxes, penalties, and interest
Offer in compromise: if you can prove to the IRS that paying your debt in full can cause financial hardship, you can choose to use an Offer in Compromise which allows you to pay the IRS a fraction of what you owe.
Currently not collectible status: You will get a one to a two-year delay in any IRS collection activities using the currently not-collectible status. This is only possible if you can prove that you are currently unable to pay your debt fully or through an installment agreement.
Penalty abatement: if you’re faced with a complex and unique tax situation that has restricted your capacity to pay, this is a tax relief option you can explore.
Get Your Taxes Back On Track!
Once you lose track of your taxes and get a penalty notice from the IRS, it’s easier to get scared and frustrated, but the most important action is to seek a way through. Going through the process alone is only going to leave you with a lot of unanswered questions. The best solution is to seek a tax expert like Tax Goddess to ease the process and help you get your debt under control so that you can run your business efficiently.
