The Right Way to Do Your Taxes
By Martin Brown
This is relatively painless. The extension form takes just a couple of minutes to fill out. Form 4868, available at IRS.gov — Application for an “Extension of Time to File.” In fact it’s the very first form offered when you go to the IRS site, so don’t worry you’re not alone in requesting an extension.
What you don’t want to do is simply ignore the IRS and file nothing. Think of it as throwing a dog a bone. Send in an extension, even if you can’t pay your estimated tax at this point, and you won’t be subject to additional penalties for not filing.
In fact, you are entitled to two extensions: one that goes from April 15th to August 15th; and a second extension to October 15th, and there is no need to extend a second time, the one extension actually takes you through to October 15.
Beware, however, of one important fact: the tax you believe you owe, if indeed you do owe additional taxes, is due along with your extension request on the 15th of April.
If you’re guesstimate is that you owe another $400 for last year’s taxes, for example, send in a check for that amount along with your extension request. If you find that you overpaid by a relatively small amount you can always apply that money to your next tax bill, something you’ll be glad you did when next year comes around.
Be careful not to underestimate what you owe. A small amount is not a big deal, but if you send in a check for $200 when your actual balance is $1,200, the IRS is going to be looking for interest and a penalty fee for underestimating your taxes due.
Although if you can prove undue hardship, or that you were affected by a federally declared disaster, terrorist act, or military action, you may get an extension of time to pay and a possible pass on all penalties. Call the IRS at 800-829-1040, and cross your fingers, but don’t hold your breath.
Of course if you are owed money, the IRS is happy to keep that excess cash just as long as it takes for you to file a completed return and request a refund. Another reason to file on time.
If you do owe, but don’t have the dough, there are two alternative payment options.
Charge you balance to a credit card.
Just go to either Pay1040.com or Officialpayments.com and follow the instructions. The sites will charge you a convenience fee based on the amount of tax you owe, so check the sites for details.
Ask the IRS to put you on a payment plan.
Then you can pay your tax balance in equal monthly payments over a specified amount of time. You can apply for an IRS payment plan by using the Online Payment Agreement application at IRS.gov or just attach a Form 9465 — Installment Agreement Request, to the front of your tax return.
The IRS charges a $105 fee for setting up an installment agreement, though the fee is only $52 if you agree to pay your bill via direct debit. You will also be required to pay interest plus a late payment penalty on the unpaid taxes for each month or part of a month, after the due date that any tax is not paid. Once your request is submitted, the IRS will let you know within 30 days if it’s approved or denied, or if additional information is needed.
Obviously neither option is ideal, but both are better than paying additional interest and penalties. Remember the old saying, “The only two realities that are inevitable are death and taxes.” Whatever your tax crunch, better to get straight with the facts, file your paper work, setup a payment plan, and get a good night’s sleep!
- “Extension of Time to File” Tax Form 4868
- “Installment Agreement Request” Tax Form 9465