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By Numbers Blog

Tax Options if You Can't File on Time


Tax time is always stressful, but it can be especially nerve-wracking if you anticipate that you won't be able to file on time. The penalties for not filing your taxes or paying any amounts owing on time can be severe, but many people don't realize there are options available for those who may not be able to file on or before tax day. This article will explain all of the options available to you if you can't file or pay your taxes on time this year.

File an extension

If you’re not able to file your taxes on time, then your first and best option will likely be to file for a tax extension. This can be an excellent solution for people who don't owe any money or who otherwise have the money they owe to the IRS and simply need more time to file the paperwork. Anyone can file for a tax extension, which will grant them an additional six months to get their paperwork in order and file their taxes.

However, although a tax extension grants you additional time to file your taxes, it does not allow you any additional time to pay money owing. In other words, an extension can allow you extra time to gather your documents and submit your tax return, but you will still need to calculate how much money you owe and submit that payment along with your tax extension form by tax day in April.

The process of filing for a tax extension is relatively simple and straightforward. If you are filing electronically, the process is automatic, and your extension is granted when you submit any money owing to the IRS for the current tax year. However, if you're submitting a paper extension request, then you'll need to fill out form 4868, which you can find and print out online via the IRS website.

Set up a short-term payment plan

Now, if you have your paperwork in order but you just don't have the money or all of it, then your best bet will likely be to set up a short-term payment plan with the IRS. Short-term payment plans allow you to make payments towards the balance owing on your tax bill for up to 120 days past the April deadline.

This is a great option for those who don't owe a ton of money and will likely be able to raise the funds within the 120-day timeframe. However, although this can help alleviate the immediate stress of needing to come up with the money all at once, the IRS is definitely not a charity, and they charge a hefty interest rate on the amount owing throughout the 120-days, and you'll also incur several penalties for not paying everything on time in April.

If you choose to go this route, then you'll have a few options available in terms of how you make payments. The IRS can directly debit your checking or savings account, which is usually the best option. Alternatively, you can set up automated credit card payments or make manual credit card payments. However, if you choose to pay with a credit card, whether the payments are automated or manual, you’ll also pay a sizeable fee for paying with a card, and all of this is on top of what your credit card company will charge you.

All things considered, this is an expensive short-term solution, but it will still end up costing you much less than you would pay if you failed to pay your taxes on time and didn’t set up this sort of arrangement.


Make an installment agreement

For those who owe larger amounts of money, the only option may be to make an installment agreement with the IRS. An installment agreement is basically another way of saying monthly payments, and that's indeed what this agreement entails. If you owe taxes and are unable to pay, you can make monthly payments for up to six years, but as you might suspect, this is a very expensive solution.

First of all, people who set up installment agreements with the IRS will pay a fee just for setting up the arrangement. If you agree to have the funds automatically deducted from your bank account each month, then the fee is $31; however, if you pay by credit card, then you'll pay a setup fee of $149. That said, low-income taxpayers benefit from a slightly lower $43 set up fee for installment agreements and can even have that money reimbursed under certain conditions.

It should go without saying that you'll also incur huge tax penalties and pay very high amounts of interest on any amount owing until both the principal, penalties and accrued interest are all paid off in full. So, for example, if you owed $5000, and made monthly payments towards the balance owing for the full six years, then by the time you paid it off, you would have paid more than $8000.

Given the high cost of making an installment agreement with the IRS, many people choose to go another route and either find a way to raise the money or else enter into a short-term payment plan. That said, sometimes it's just not possible to pay the full amount owing in 120 days, and an installment agreement is definitely better than having a federal lien put on your property and incurring the maximum fines, penalties, and interest fees associated with not paying your taxes at all.

Offer in compromise

Finally, for those who have a tax bill that’s greater than the sum of their financial assets, it may be possible to arrange what’s known as an offer in compromise (OIC.) This entails sending extensive financial documents to the IRS, and if approved, they will allow you to make payments over time and possibly even reduce the amount of money owing. Ultimately, if you have no assets for the IRS to seize, then they would rather collect some money from you over time than not receive any payment at all.

Raising money for your tax obligations

If you really don’t want to take advantage of the solutions mentioned above and would prefer to raise the funds to pay your tax bill outright on tax day, then you have a few options for raising the money that you may not have considered. Although none of these options are likely to be your first choice, they can be much better than incurring penalties or accruing hefty interest charges on your tax bill.

Use your credit

Your first option is to use your available credit to pay your taxes. Assuming that you have the ability to take cash advances, you may be able to get the cash and pay your tax bill via your credit cards. Although you will still be paying interest if you leverage your credit cards in this manner, the interest will likely be lower than the interest charges you would incur when filing late or making an alternative payment arrangement with the IRS.

Take a loan

Your second option is to take out a personal loan and use that money to cover the amount owing on your taxes. Generally speaking, an installment loan will carry lower interest fees than a cash advance from a credit card and will certainly be much lower than the interest fees charged by the IRS for filing your taxes late. Loans also allow you to pay the bill over a longer period of time, and so by going this route, you can spread your payments out over months or even years while still having your taxes paid in full on tax day.

Ask for help

The last and often least favorable option is to ask family or friends for help in the form of a personal loan. Most people avoid doing this, either because they are embarrassed or otherwise not sure how to ask, but in many cases, your family or friends will be willing and able to help you out, and if it means saving thousands of dollars in tax penalties and late fees, then sometimes it’s best to bite the bullet and ask for help. The advantage of asking for help is that a personal loan from a friend or family member is unlikely to have interest charges attached to it, so if all else fails, this can be a solution that makes sense.

Summary

Tax season is stressful at the best of times, but even more so when you don’t think you’ll be able to file or pay your taxes on time. The penalties for filing or paying late can be severe, but there are also a ton of options available that can help you spread the cost out over time or defer your payments until a later date. So, if you’re stressed out and worrying about the upcoming tax deadline, then take a deep breath and look into one of the options mentioned above; you may have to pay a bit of interest over time, but there are multiple solutions, and it’s not the end of the world.


Final Thoughts

If any of the information provided above made you feel confused, don’t stress because you are not alone. There are many other businesses that have faced similar problems in the past. However, with time, they have fared well with just a little help.

If you are struggling or just don't have the time to keep up with it, it may be time to have Hall Accounting take over and invest with accurate accounting records and financial reports. The Hall Accounting team will manage your records from start to finish and make sure all adjustments are timely recorded. This option is also feasible for small businesses because it is cheap and hassle-free, at a fixed monthly rate. If you are interested, please feel free to email us at proposals@hallacctco.com and we will get you a free quote!


FUTURE IMPORTANT DEADLINES

4/18/22
Deadline to file individual tax returns for 2021
First-quarter estimated tax payments due for 2022
Deadline to contribute to HSA for 2021
Deadline to contribute to IRA for 2021

6/15/2022

Estimated tax payment for 2nd quarter of 2022 (Form 1040-ES)