TAHLEQUAH — Filing annual income tax returns can raise stress levels to some extent depending upon a filer’s situation, but stress levels can become even greater for those who get to the last line and find they owe Uncle Sam more than they expected.
Taxpayers who find themselves in such a situation have a few options available. Tax professionals say the one thing that should be avoided at all costs is failing to file that return or, in the alternative, requesting an extension.
This year’s filing deadline is April 18, which gives taxpayers three extra days due to the traditional date falling on a weekend and an obscure holiday recognized only in the District of Columbia the following Monday. But failing to file a return or apply for an extension before the deadline can cost a taxpayer 10 times more than paying late taxes.
“They’re going to send you a bill,” Ken Portera, an enrolled agent in East Brunswick, N.J., said about the Internal Revenue Service during an interview with NerdWallet, a personal finance website. “I mean, it’s as simple as that.”
IRS officials say those who owe but are unable to pay the entire balance of their tax bill have options. Those taxpayers often find they qualify for one of several programs offered by the IRS.
Eligible taxpayers who owe $50,000 or less in combined tax, penalties or interest can submit an application and set up a payment plan online. Short-term payment plans are available for those who need up to 120 days to pay, and long-term agreements will allow a taxpayer to stretch out payments for up to six years.
“Most people can set up a payment plan with the IRS online in a matter of minutes,” IRS officials state on the agency’s website. “With the Online Payment Agreement, no paperwork is required, there is no need to call, write or visit the IRS, and qualified taxpayers can avoid the IRS filing a Notice of Federal Tax Lien unless it previously filed one.”
Another option available to some struggling taxpayers is what the IRS calls an offer in compromise. The option amounts to a settlement of a taxpayer’s liability in an amount less than that which is owed — eligibility is based upon a taxpayer’s income, assets and the ability to pay.
There are fees associated with payment plans — the fees are smaller for those who make arrangements online and authorize direct debits from a bank account. The IRS also assesses interest on the unpaid balance, which typically is lower than what a taxpayer might pay for borrowed funds.
John S. Kiernan of WalletHub, another personal finance website, cautioned taxpayers who find themselves unable to pay the tax that is due on filing day against trying to hide. Kiernan said IRS officials have “proven far more willing to work with people who are straightforward about their inability to meet tax obligations” than those who try to dodge them.