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Tax Extensions and Penalties

 

 

Apply for a payment plan using the Online Payment Agreement tool on www.IRS.gov .You can also file Form 9465, Installment Agreement Request, with your tax return. If you are unable to make payments because of a financial hardship, the IRS will work with you.

Filing an extension on time will reduce your tax penalties by a LOT! Late filing penalties go from 5% of the tax owed down to ½ of 1% of the tax owed, with an extension!

  1. Extra time to file is not extra time to pay

An extension to file will give you six more months to file your taxes, until Oct. 15. It does not give you extra time to pay your taxes. You still must estimate and pay what you owe by the April deadline (usually April 15th). You will be charged interest on any amount not paid by the deadline. You may also owe a penalty for not paying on time. But filing an extension will reduce the penalty (see #1 above).

  1. Use IRS Free File to request an extension

You can use IRS Free File to e-file your extension request. Free File is only available through the IRS.gov website, and there are income limitations. You must e- file the request by midnight of the April deadline. If you e-file your extension request, the IRS will acknowledge receipt, via email.

  1. Use Form 4868

You can also request an extension by mailing a Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. You must submit this form to the IRS by the April due date. Form 4868 is available on https://www.IRS.gov. You don’t need to submit a paper Form 4868 if you make a payment using an IRS electronic payment option. The IRS will automatically process your extension when you pay electronically. You can pay online or by phone.

  1. Electronic funds withdrawal

If you e-file an extension request, you can also pay any balance due by authorizing an electronic funds withdrawal from your checking or savings account. To do this you will need your bank routing and account numbers.

  1. Consider Form 1127

      You can also request filing IRS form 1127 if there is a financial           hardship that does not allow you to send money in with the extension    or the tax return. This form does NOT give a free pass not to pay taxes. The form provides for NOT having to pay penalties and the interest on penalties IF you can prove financial hardship. Death, Disability, High Medical Bills, Bankruptcy and Disasters are examples of reasons the IRS will accept financial hardship requests.

Here are some points to consider for this period:

  • Extension Form 4868 (automatic extension of time to file for up to 6 months) The IRS will approve an extension if you file it by the April deadline.
  • Pay taxes by credit card, check, money order or electronic payment. (Can be paid over the phone or via internet for a fee) Remember that paying by credit card can cost fees from both the IRS AND the credit card company. You might consider a cash advance, deposit into a checking account, and write a check to IRS for taxes owed.
  • Late payment WITH extension is ½ of 1% of any tax that is not paid by due date. Having an extension allows you to pay the least amount of any underpayment penalty if you have one.
  • Late payment WITHOUT extension is 5% of tax owed (cheaper to file an extension). Remember that in addition to a penalty for late payment, there is also an interest charged by the IRS that is compounded daily. Therefore, filing an extension is so much better to do.
  • You owe less than $50,000 and can’t pay the tax, file form 9465 (IRS will accept the agreement you propose. There is a fee, and the interest is compounded daily). The IRS gives you up to 6 years to pay taxes owed, but you can NOT be late in filing for the next 5 years’ returns.
  • Form 1127 allows you to file and pay taxes late if you have financial hardship, without an extension (severe hardship must be proven.)

 

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Mr. Hockensmith has been a guest newscaster for national and local TV stations in Phoenix since 1995, broadcasting financial and tax topics to the general pubic. He has written tax and accounting articles for both national and local newspapers and professional journals. He has been a public speaker nationally and locally on tax, accounting, financial planning and economics since 1992. He was a Disaster Reservist at the Federal Emergency Management Agency, for many years after his military service. He served as a Colonel with the US Army, retiring from military service after 36 years in 2008. Early in his accounting career, he was a Accountant and Consultant with Arthur Andersen CPA’s and Ernst & Young CPA’s.

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