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From job layoffs to the battered housing market, many people are still reeling from the economic downturn. And with the April 15th IRS tax filing deadline right around the corner, a lot of taxpayers are scrambling to understand their options if they can't pay their taxes on time.
If you complete preparation of your tax year 2008 income tax return and find that you will owe, you need to take action to avoid costly IRS penalties and interest charges. And according to Jim Keller, Senior Tax Analyst for The Tax & Accounting business of Thomson Reuters, late payers "can expect to come up against a more aggressive IRS" this year.
An Extension to File is Not an Extension to Pay. Remember that an IRS extension to FILE your taxes is not an extension of time to PAY your taxes. This is a common misconception. The reality is that if you receive an extension to file, you still need to estimate the amount of tax you will owe, and pay that amount on or before the IRS's April 15th deadline. If you don't pay at least 90% of the amount of tax you'll owe, you can expect to incur penalties and interest.
Pay What You Can Now. No matter how dire your financial situation, your best bet is to file your return on time and pay whatever you can to get the ball rolling. Not filing your taxes at all will put you even further behind the IRS 8-ball. Keller advises: "the failure to pay the taxes due on April 15 will result in interest charges and a penalty for failure to pay of one-half one on-percent per month on the unpaid balance (up to 25%) until the taxes are paid. But by filing or extending [your] return, [you]'ll avoid the more onerous late filing penalty of 5% per month on the unpaid balance (up to 25%) until the return is filed."
If you cannot pay the taxes you owe, you may also want to consider financing options like home equity loans, or look into the possibility of an IRS installment plan.