When you’re running low on dough and paying the taxes feels like the last thing you want to do, you might want to reconsider. Not filing and paying your taxes can pose significant problems down the road, jail time included.
Penalties for Not Filing/Paying Your Taxes
If you feel like skimping on taxes permanently, there will be repercussions. The penalties for not filing and not paying up are different, though. Here are some of the consequences in detail:
- There will be a failure-to-file penalty if you do not file. The penalty is 5% of your unpaid taxes for each month your tax return is late, up to a maximum of 25%. Furthermore, if you file more than 60 days late, you must pay a minimum of $135 or 100% of the taxes owed (whichever is less).
- The IRS will charge you a failure-to-pay penalty if you submit your taxes but do not pay them. The penalty is much lower: the IRS will generally charge you 0.5 percent of your unpaid taxes for each month you do not pay, up to a maximum of 25%. Interest is also charged on overdue taxes. The interest rate is equivalent to the federal short-term interest rate + 3%.
Tax Payment Alternatives You Can Use
All isn’t lost when it comes to paying your taxes. Thankfully the IRS encounters payment hiccups so frequently that they’ve designed some alternatives to make it easier for you to follow through. Here are some of them:
- Apply for a Monthly Payment Plan
If you’re behind on your taxes but believe you’ll be able to catch up someday, this is your best bet. Fill out an online payment agreement application on the IRS website once you have filed your tax return.
You can also submit your taxes together with Form 9465. The form is used by taxpayers who want to pay their taxes in monthly installments. If you owe $50,000 or less in combined tax, penalties, and interest, the IRS will allow you 72 months to settle your account.
- Request for a Short or Long-Term Extension Agreement
The IRS can offer a short-term agreement or a long-term payment plan (an installment arrangement).
If you owe less than $100,000, including fines and interest, you may be eligible for a short-term payment option. While monthly payments are not required, you must pay the amount owing by the official payment date. There is no setup charge or any additional expense to be eligible for this option. However, if you apply online, you may only seek up to 120 days, whereas the IRS may allow you up to 180 days if you apply by phone or mail.
You can choose a long-term payment option if you owe less than $50,000, which covers your outstanding tax total as well as any penalties and interest. This option allows you to pay in monthly installments for more than 120 days. Unlike the short-term option, the IRS charges a $31 setup fee if you agree to have the payment taken from your bank account monthly (the price is $149 otherwise). If you fulfill the IRS’s low-income criterion and other circumstances, you can request that the charge be waived or reduced to $43.
- Submit an Offer in Compromise
An offer in compromise allows you to settle your tax obligation for a lower amount than you owe. It may be a viable choice if you cannot pay your whole tax due or if doing so would cause financial hardship. The IRS takes into account your specific combination of facts and circumstances: Ability to pay, income, expenses, and asset equity are all factors to consider.
One thing you should never do is bypass the problem altogether. The legal implications of not paying far outweigh the hardship of finding a payment solution in the short term.
When you consult with a tax resolution specialist like Axiom Tax Resolution Group, you can rest assured we’ll go above and beyond to find a tax solution that best fits you. Call us at 844-8-TAX-PRO today!