January 29, 2016

4273232_sDo you owe money to the IRS? Should you file your tax return even if you don’t have the money to pay for it?

While you may not have the cash to pay for your taxes, you also shouldn’t ignore the problem completely—because it won’t go away. If you are unable to pay your taxes on time, it is important that you still file a tax return by the filing deadline.

Unknown to many individuals who owe taxes, failing to file a tax return or an extension to file by the due date can actually increase the amount owed to the IRS by as much as 25 percent in interest and penalties. Failing to file your taxes may also result in your facing criminal charges.

The penalties for not filing a tax return or a tax extension are greater than the penalties for not paying your owed taxes. If you do not pay your taxes in full by the due date, the monthly penalty is 0.5 percent of the unpaid balance. If you do not file a tax return at all, however, the penalty is 10 times that amount or 5 percent for every month that your return is late.

Apart from the monthly penalty, you may also need to pay another fee once 60 days have passed and you have still not filed your taxes—at least $135 or 100 percent of the owed tax, whichever of the two amounts is lower.

Of course, interest will also accrue on the unpaid taxes and on the assessed penalties. Filing a tax return or an extension to file can greatly limit the amount to be ultimately paid in interest and penalties. Note that you may be able to avoid these fees if you can establish reasonable cause for being unable to file on time, such as due to a medical emergency.

If you can, pay as much of your tax bill as possible when filing your tax return. This will limit the interest and penalties that continue to add up until you pay the full balance. The IRS will eventually send you a bill for your balance, which should give you about 45 days or so to raise the remaining amount.

Keep in mind that there are several options to consider if you cannot pay the IRS immediately. Filing for an extension to pay can buy you an additional 120 days to pay your taxes. If you are eligible, you may also want to consider applying for an installment plan or an offer in compromise.

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