Tax day is quickly approaching. This year, you have a few extra days with the April 18 deadline.
Depending on your circumstances you might not have enough time to meet the deadline. Unfiled returns can become a serious liability. While you might not have a return postmarked by April 18, you can avoid the larger of two penalties by requesting a six-month extension.
More time to file, but not more time to pay
Several ways exist to obtain more time – until October 16. They include:
- Form 4868, which can be electronically filed
- IRS Direct Pay or the Electronic Federal Tax Payment System
A tax preparer or accountant can request an extension for you too. Asking for additional time to file your return does not give you extra time to pay.
How do you know your tax balance without completing a return? An estimate is good enough and a partial payment can mitigate penalties.
Unlike the failure-to-file penalty which is 5 percent of the outstanding balance each month, the failure-to-pay is .5 percent per month. By paying a portion of what you know will be owed, you can also reduce the amount of the failure-to-pay penalty.
Installment agreement options
If you owe less than $50,000, the IRS offers payment plans that spread out repayment.
'There are fees associated with these programs. As of January 1, 2017, the fee for a regular installment agreement was $225. But by authorizing direct debit, it reduces the cost to $107. An online payment agreement with direct debit is the most reasonable at $31.
If you are unprepared for tax time this year, file for an extension to limit the penalties. When a tax bill comes as a surprise, seek advice from a tax attorney to resolve the problem and make sure it doesn’t keep happening.