Some Americans may not have made this year’s delayed tax deadline – July 15 – which means penalties and interest could begin accruing unless they take prudent action to address their situations.
A common reason people may miss the tax deadline is if they believe they might owe and do not want to deal with it, Christina Taylor, head of tax operations at Credit Karma, told FOX Business.
However, putting off filing a return and paying obligations will only exacerbate the problem.
“Don’t do nothing,” Taylor said. “Face the music now, it’s not going to go away.”
Here are some steps you can take to keep your penalties to a minimum if you are unable to file by July 15.
Even if you missed the tax deadline, the sooner you file your return, the better.
That’s because penalties and interest will begin accruing immediately.
If you file and pay late you are most likely going to have to pay a price. A penalty is issued first for filing late. This is 5 percent of the amount of unpaid taxes each month, up to a maximum of 25 percent. The penalty for paying late is 0.5 percent of the amount you owe each month up to a maximum of 25 percent. If both penalties are due in the same month, the failure to file penalty is reduced to 0.5 percent.
Pay what you can
Even if you cannot afford your full tax bill, Taylor advises individuals to pay what they can now as a means to limit accruing interest.
An individual, for example, who owes $1,000 but pays $200 now would get the underpayment penalty on $800 instead of the full $1,000, Taylor noted, which is a different that will “add up over time.”
Communicate with the IRS
The IRS has said it expects fewer people to pay their obligations in full this year given the financial consequences of the coronavirus outbreak, but you still need to be proactive about letting the agency know you aren’t able to afford your bill, Taylor said.
The agency is receptive to working out repayment agreements, but being diligent about your situation will help you position yourself for the best possible outcome.
Taylor recommends looking into an offer in compromise.
There are also installment agreements, under which you repay the IRS over time.
Here are some other tips if you cannot afford your tax bill.
Ask for Help
If you are unsure of what to do or how to handle your financial situation, consult or request help from a qualified professional.