This year, you have a few extra days to come up with the money to pay for your taxes, but that may not be sufficient for some taxpayers. It can be difficult to your tax bill, especially if you are not expecting it and do not have sufficient available funds. Although you have options for paying your taxes, filing for an extension for your return is not one of them.
An Extension to File
Although set up for those who live outside the US or have to wait for certain forms, anyone can file for an extension to file their tax return. The thing that most people do not realize is that it is simply requesting more time to file your return–not to pay your taxes. Your taxes are due by tax day, which is usually April 15, but in 2016, it is April 18. Even if you have filed for an extension to the October 15 deadline, you are still expected to pay an estimated amount of your taxes by the April deadline.
Extension to Pay
The IRS does have a program that allows taxpayers to request an extension to pay their taxes. This is not as easily granted as an extension to file. This only gives you up to a few months beyond the due date to come up with the money, and you have to pay the tax in full before your new deadline. This will save you money in interest and penalty fees, but you do have to qualify and be approved by the IRS before tax day for it to help you. Typically, you need to be able to prove that paying the tax will create an undue hardship, and you must include supporting documents, including your assets, liabilities, and an itemized list of your income and expenses.
It is important to note that “undue hardship” is not simply that it would be inconvenient or that you may have to take out a loan to pay. You have to prove that you will endure a significant financial loss, such as selling property at a loss, in order to pay the tax on the day that it is due. You also need to file it as soon as you become aware of the financial hardship, with plenty of time before the April deadline.
What to Do If You Can’t Pay
So, what should you do if you can to afford to pay your taxes? File your return on time and pay as much as possible. This will reduce your total amount you have to pay, because you will avoid failure to file penalties and interest, as well as some failure-to-pay penalties. Any amount you can put towards your bill, even if it seems insignificant, will help you in the long run. Another option is to take out a personal loan or pay by credit card, as the interest and other fees are typically lower than that charged by the IRS.
You can also create an Installment Agreement to pay over time rather than in one lump sum. You may be able to put off when your first payment is by a few weeks or even months, depending on your situation. You will still have to pay some interest and fees, but it will be lower than if you did not set up the payment plan. With an Installment Agreement in place, you also avoid collective action, as long as you remain in compliance and do not miss a payment.
By being proactive in handling your inability to pay, you will avoid much of the hassle and stress of owing money to the IRS, as well as reduce some of the penalty charges and interest that can significantly increase your tax bill. If you wish for assistance in setting up your Installment Agreement, or if you have back taxes that you wish to take care of, contact Fidelity Tax Relief. Our tax professionals will investigate your situation and determine the best way to settle your tax debt. Learn more about your tax relief settlement options by downloading our 8 Ways to Reduce Your Tax Debt eBook.