April 18 was the tax deadline for most taxpayers to file this year. But if you haven”™t sent in your 2021 return, here”™s how to proceed in order to avoid getting in trouble with the Internal Revenue Service (IRS).
First, gather all information related to income and deductions for the tax year, then contact a qualified tax preparer for an in-person or virtual appointment. Dealing with late taxes can be difficult and costly on your own.
If you are owed money, the sooner you file, the sooner you will get your refund. If you owe taxes, file and pay as soon as you can, which will stop the interest and penalties you owe.
If you owe money but cannot pay the IRS in full, pay as much as you can when filing your tax return to minimize penalties and interest. The IRS will work with you if you are having a financial hardship. If you continue to ignore your tax bill, the IRS may take collection action.
Some taxpayers may have extra time to file their tax returns and pay taxes. These include individuals living or working in a federally declared disaster area, military service members and eligible support personnel in combat zones, and U.S. citizens and resident aliens who live and work outside the U.S. and Puerto Rico.
There are several ways to make a payment on your taxes: credit card, electronic funds transfer, check, money order, cashier”™s check or cash. If you pay your federal taxes using a major credit card or debit card, there is no IRS fee for credit or debit card payments, but processing companies may charge a convenience fee or flat fee.
Review your options because the interest rates on a loan or credit card could be lower than the combination of penalties and interest imposed by the Internal Revenue Code.
Taxpayers who cannot pay the full amount owed should pay as much as possible. This will reduce the amount of interest and penalties owed than if you pay nothing. Based on individual circumstances, a taxpayer could qualify for an extension of time to pay, an installment agreement, a temporary delay, or an offer in compromise.
For individuals, IRS Direct Pay is a fast and free way to pay directly from your checking or savings account. Taxpayers who need more time to pay can set up either a short-term payment extension or a monthly payment plan.
Most people can set up a monthly payment plan or installment agreement that gives them more time to pay. However, penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. You should pay as much as possible before entering into an installment agreement.
Taxpayers who have a history of filing and paying on time often qualify for penalty relief. Taxpayers generally qualifies if they have filed and paid timely for the past three years and meet other requirements.
Your specific tax situation will determine which payment options are available to you. Payment options include full payment, a short-term payment plan (paying in 120 days or less), or a long-term payment plan (installment agreement paying in more than 120 days).
User fees may apply depending on the type of installment plan you are approved for. A sole proprietor or independent contractor should apply for a payment plan as an individual.
You may qualify for a long-term payment plan (installment agreement) if you owe $50,000 or less in combined tax, penalties and interest and filed all required returns. You may qualify for a short-term payment plan if you owe less than $100,000 in combined tax, penalties and interest.
It is important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for various enforcement actions – including substantial penalties and fees.
For example, the failure-to-file penalty is 5% of the tax owed for each month or part of a month that a tax return is late. However, this penalty is reduced for any month where the failure to pay penalty also applies. The basic failure-to-pay penalty rate is generally 0.5% of unpaid tax owed for each month or part of a month.
Norman G. Grill is managing partner of Grill & Partners LLC, certified public accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien.
