Unable to Pay Your Taxes on Time: What Happens & What to do - Tax Professionals Member Article By Tiffany Gaskin
Posted by Tiffany Gaskin

Unable to Pay Your Taxes on Time: What Happens & What to do

Unable to Pay Your Taxes on Time: What Happens & What to do

There are times when life situations change and things take a turn for the worse. It might come as a shock that you owe hundreds or worse on preparing your tax, thousands in taxes which you never expected. While we agree that this is horrible, it is not the end of the world since there are options to resolve it. 

A bad call you should not make is to avoid paying your tax or not filing your return. Uncle Sam wields so much power when it comes to enforcing tax collection, and it might get ugly, getting entangled with the law.


Result of Not Paying Your Taxes 

Many things might happen which could affect your ability to make good on your taxes, resulting in interest and penalties. This article will explore the late filing of your return and late tax payment.


Late Filing of Your Return 

If filing your return by the tax deadline seems impossible, you should submit Form 4868 – a request for an extension to file from the IRS before the tax day. However, an extension to file is not an extension to pay.

After filing Form 4868, it is essential to confirm that you paid (or overpaid) your tax liabilities, giving you a refund when you eventually file (if you overpay). 


Late Payment of Taxes 

One might end up with tax debt on filing the tax return. This means you file your return, but the taxes were not paid. Failure to pay by the due date will lead to interest and penalties on the tax debt.

Not paying will attract a short term rate of 3%, which accrues daily after its due. The fact that you requested an extension does not matter.

It gets to a point when Uncle Sam will send you a letter demanding your tax. Failure to respond to such will warrant a tax lien on your properties.

 

Options for Tax Payment:

 

Borrow for Your tax Payment 

It is possible to transfer your tax liability to any of your credit cards at a fee of 2%. One can also request a debt consolidation from a credit union or bank.

Choosing any of these sources is like borrowing to pay your tax debt which will come at an expensive fee, except your credit card has a low-interest rate. Also, securing a personal loan at a low-interest rate is a good call.

 

Ask For a Payment Extension 

While you might request a filing extension using Form 4868, it will not make much of a difference. The extension is simply an extra time to file your tax, not extra time to pay. Early filing, however, can reduce any penalty or fee you will incur as Uncle Sam has a late penalty fee of 0.5% for every month, which could amount to 25%, and a late penalty fee of 5% for every month, which could also get to 25%. As a result, early filing can save you a lot of money.

Due to financial difficulty, people who cannot pay can give Form 1127 a try, which offers a six-month payment extension. You will submit this form alongside your current assets and liability with a statement of the entire funds you got and spent in the last three months.

 

Make Payment Fast, as Much as You Can

If you make a payment late, Uncle Sam will charge you penalties and interest. Sadly, such extra charges will make it harder to take care of your tax debt. Yet, penalties cannot be removed as everyone will pay late if they do not exist.

If you pay as much as possible on time, you will not have much balance that will accrue a significant interest and penalty. Uncle Sam will send you a bill known as the Notice of Tax Due and Demand for payment. However, you need not wait to get such a bill before making extra payments. As soon as you are capable, make sure to pay what you can and make a subsequent payment that you can afford, as each payday comes with Form 1040 V.


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Tiffany Gaskin
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