Can’t Pay Taxes, It’ll Cost You
January 24, 2012
I think it’s safe to say that most of us don’t like filing income tax returns and writing big checks every April but you know what they say about dying and paying taxes – you can’t avoid them.
If you don’t pay what the IRS says you owe it’ll end up costing you a lot more than your initial tax bill. When you skip out on your taxes, there are some fairly harsh penalties.
Even if you know you can’t pay what you owe, you are better off filing a return and working with the IRS than just ignoring the problem and skipping taxes altogether.
Penalties and Interest
When you don’t pay your taxes, the penalties and interest start to add up. The IRS will levy penalties against you, and start keeping track of interest. The interest starts from the day after taxes are due.
So, if your quarterly taxes are due on June 15, the IRS will start charging you interest from June 16. The longer you wait to pay your taxes, the more the interest and other penalties add up. Coming up with the money to pay these penalties and interest is even more difficult than finding the money to pay the initial amount owed in the first place.
It is also important to remember that there is a similar process when you skip your state income taxes. Your state will also have its own penalties and interest charges. So, if you don’t pay your federal taxes or your state taxes by the tax return deadline, it could get very expensive really fast.
Failure to File a Tax Return
Many people believe that, if they can’t pay their taxes, there is no reason to file a return. This is not true at all. In fact, the penalty for failure to file is rather hefty. It’s more than some of the penalties for not paying taxes.
If you don’t file your tax return, you will be subject to an even bigger penalty. Ignoring your tax problem won’t make it go away. In fact, the longer you wait, the worse it gets. You can access most of the best tax software for consumers online. There are ways you might be able to find some tax software discounts and in some cases you can file your taxes online for free.
Working with the IRS
The IRS actually offers you the chance to pay your taxes using an installment payment plan. You don’t have to pay all at once if you can’t afford to. As long as you owe less than $25,000 in taxes, penalties and interest, you are usually eligible to apply for an installment plan.
You can even do this online at the IRS web site . As part of the application process, you tell the IRS how much you can pay each month, and the IRS reviews your situation and determines whether or not to accept your proposal. You should realize, though, that the installment plan is, in fact, a loan.
You will have to pay a one-time fee for origination, and you will pay interest. However, the interest that you pay is likely to be better than what you would pay if you used a credit card, or got a payday loan. And, by setting up an installment agreement, you can avoid paying some of the penalties.
If you are willing to show that you want to pay your tax obligation, and you make an effort, in many cases, you will be able to get some help in making the whole situation a little more affordable.
All posts by Miranda