If you filed on time, next week’s tax deadline will probably pass by unnoticed. Another year’s taxes are filed away.
But… if you’ve fallen behind, had trouble gathering all your documents, or simply decided to ignore the tax filing deadline, this note is for you.
Now, the IRS isn’t going to break down your Mount Vernon door, seize your Westchester County property, or send you to jail the day after the deadline. They will give you plenty of notice and only take drastic measures to collect if you ignore them.
But rather than it coming to that, there are steps you’ll need to take if you end up missing that April 15th tax filing deadline. (Did I mention it’s next week?)
First, make sure you file – even if it’s late. The penalty for failing to file on time is a hefty 5 percent of the unpaid taxes for each month or part of a month that your return is late, up to a maximum of 25 percent. Compare that to the penalty for failing to pay, which is only 0.5 percent per month, also capped at 25 percent. So it’s 10 times worse to skip filing than skipping payment (though of course, you need to do both).
If you need more time to gather your documents, you can file Form 4868 for an automatic extension to file, but this has to happen by your tax deadline (April 15th in most cases).
Second, make sure you know all the payment options. Most people only know about paying the full amount or maybe a basic payment plan. But the IRS has several avenues for taxpayers in a bind:
- Short-Term Payment Plan: If you can pay the balance within 180 days, this is a straightforward option.
- Installment Agreement: For longer-term repayment, you can set up monthly payments over a period.
- Offer in Compromise (OIC): This is where things get interesting. An OIC allows you to settle your tax debt for a lower amount than what you originally owe. Two things to note: Submitting an OIC does not stop interest from accruing, and many applications for OICs are rejected.
- Currently Not Collectible (CNC): If you can prove significant financial hardship, the IRS might temporarily halt collection efforts until your situation improves.
Note with all of these options that there are qualifying factors: usually that your debt is under a certain amount and that you’ve filed all of your tax returns. Which brings us back around to my first point (file, file, file).
But if you’re not sure if any of these payment options will work for your situation, we can talk about that.
Thirdly, make sure you understand the consequences of doing nothing. As with any tax-related issue, ignoring the problem won’t make it disappear. You would have to ignore a lot of warnings for the IRS to take legal action, but believe me, they will.
One such action comes in the form of tax liens, which are public claims against your property that can negatively impact your credit score and ability to borrow money. Even more serious are tax levies, where the IRS can seize funds directly from your bank accounts or garnish your wages.
If you’ve received a notice of intent to levy or lien, the fight isn’t necessarily over. You can step in to request a collection hold, explore appeal options, and work to prevent these drastic actions. (Or you can put this in your favorite trustworthy tax debt specialist’s hands… ahem.)
Finally, set yourself up to pay on time next year. Dealing with a missed tax filing deadline is one thing; preventing future issues is another.
Take a hard look at why you couldn’t pay this year’s bill. Did you underestimate your income? Did unexpected expenses pop up? Maybe you lost track of your tax documents and need a better system for keeping yourself organized.
Best practice is to create a proactive tax plan that includes tracking income and expenses throughout the year so you’re not caught off guard come tax season.
The biggest misconception I see with my Mount Vernon clients who come through my door is they think that owing the IRS means you’re financially ruined. It doesn’t. I’ve personally guided countless everyday individuals back to solid financial ground after missing a tax filing deadline.
The real issue is that most readily available tax advice only scratches the surface. They won’t delve into the intricacies of negotiating an Offer in Compromise or how to effectively demonstrate hardship to halt aggressive collection actions.
You need someone in your corner who speaks IRS-ese and isn’t afraid to pick up the phone and advocate fiercely on your behalf.
So don’t wait for a levy to hit your bank account or a lien to tarnish your credit. If the weight of unpaid taxes is pressing down on you, give me a call and take that crucial first step toward reclaiming your financial peace.
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Keeping those deadlines top of mind,
Lynn Karam