Considering the year we are having, it’s only natural that some people may have missed the tax extension deadline. They may have been burdened with work, under medical care, or busy with relocation. While all those reasons may sound genuine, the unfortunate part is that if you miss the extension deadline, you are vulnerable to penalties and late fees.
But that shouldn’t discourage taxpayers as there are other options to offset and reduce the penalties. The one thing you shouldn’t do is to ignore or postpone. Just because you don’t hear from the IRS, it doesn’t mean that things are going well. Here’s how your problems can systematically increase if you decide to do nothing about filing or paying taxes.
Rising Interest
Compounding interest is an excellent thing when you are at the receiving end, and a terrible thing if you are the one who has to pay. If you haven’t paid your taxes on time, with every passing day, the interest will increase. Present-day action prevents future headaches.
Higher Late-Payment Penalty
Late-payment penalty will kick in if you miss the deadline in April. The fee is calculated at .05 percent for every month that you don’t pay your taxes. If you don’t pay even after the extension deadline, there will be an increase in the penalty, with an upper limit of 25 percent.
Late-Filing Penalty
Late-filing penalties are higher than late-payment penalties. For every month that you don’t file your taxes, there will be a 5 percent charged to your tax debt. The upper limit for the penalty is 25 percent
What are the options when you miss the deadline?
Installment Agreement
Under the Fresh Start Program, the IRS offers several options for those who cannot pay their taxes on time. With the installment agreement, the outstanding tax dues are divided over a period of time which the taxpayer has to pay every month in installments.
Penalty Abatement
If you can prove that there is a reasonable cause for your non-payment, the IRS has the power to either reduce or eliminate a penalty. Technically, it’s referred to as a first-time penalty abatement (FTA) waiver. The IRS defines reasonable cause as “any reason which establishes that you used all ordinary business care and prudence to meet your Federal tax obligations but were nevertheless unable to do so.”
Offer in Compromise
This is where the IRS and the taxpayer, after some negotiations, reach a settlement. The taxpayer then has to pay the amount that both parties agree to.
Need for Experts
If you have missed filing or paying your tax, the problems can compound quite quickly. Negotiating on your own with the IRS may put you at a disadvantage. It’s always ideal to reach out to trained tax analysts, and attorneys, like at Fidelity Tax Relief. An expert team like ours will be able to analyze the problem, and present you with several options that will suit your requirements.
