Imagine this: It’s the night before taxes are due. You’re surrounded by papers and documents. You’re not sure what AGI means and you can’t find last years’ state refund mean and your internet is going so slow. Then the fear and panic sink in. You start thinking to yourself I’m not going to be able to pay on time. Or imagine a different scenario where that you file your return and discover that you are unable to pay your taxes.
- What do you do?
The law requires you to pay income taxes progressively throughout the year so that you don’t owe a lot in April and may even be eligible for a refund of overpaid taxes. Employers typically withhold and pay income tax on their employees, whereas self-employed individuals make quarterly estimated tax payments directly to the Internal Revenue Service (IRS).
If you do not pay your taxes by the due date, interest and penalties will begin to accumulate on the unpaid balances. With time, you may face liens on your property or salary garnishment. In the most severe cases of tax evasion, you may face up to five years in prison. However, don’t panic. You have options. Here are things you can do if you can’t pay your taxes on time.
Defer your payments
Tax deferral refers to situations in which a taxpayer may postpone paying taxes until a later date. Theoretically, the net taxes paid should be the same. Taxes may sometimes be postponed permanently or at a reduced rate in the future, most notably for income tax deferral.
Due to the statute of limitations, submitting your taxes on time or as soon as feasible also begins the clock for the IRS’s ability to collect on the tax obligation, conduct an audit, and pursue alternative forms of tax debt relief such as bankruptcy. The sooner you submit your taxes, the sooner you can put the IRS out of your mind.
If you can pay your tax obligations in full but need more time to do so, you may apply for a short-term payment arrangement, which allows you up to 120 days to pay in full.
Have your taxes prepared by a professional
A tax expert may review your prior returns to see whether any deductions were overlooked and, if necessary, modify them on your behalf. You may minimize your audit risk. Additionally, if you are audited, or the IRS begins to ask questions that are difficult to answer, a professional tax preparer is familiar with how to deal with the IRS.
If you want to employ a tax expert to prepare your taxes, you must first collect and arrange your documents. When you sign your tax return at the conclusion, you certify that the information is truthful and correct to the best of your knowledge. If the IRS audits your return and discovers mistakes, you may face severe legal repercussions.
If you require some help in this complicated taxation phenomenon, you can hire an income tax expert. Whether you are filing your taxes with TurboTax, H&R Block, Wealthsimple, or CloudTax, having a professional draft your tax return provides an additional layer of protection against possible liabilities.
According to CloudTax, a company with income tax experts in Canada, the benefits of hiring an expert include guaranteed maximum tax credits and secure filing. However, always exercise caution by reviewing your return to verify that all of the figures are precise and accurate.
Submit an extension request
You may request an extension of time to file your taxes online or by mail by completing Form 4868 to the IRS. You must complete this before the tax filing deadline. Extending your tax return provides you with additional months to prepare your return regardless of the cause for the extension.
Obtaining a tax extension may decrease your chances of being audited by the IRS. While no one outside the IRS knows for certain how the audit selection process works, it is reasonable to assume that a tax extension does not trigger an audit.
The authorities will automatically grant you an extension that is valid for six months, so they will not deny you if this is your first application. However, you must seek an extension of time to submit your return before the deadline, or your return will be deemed late.
If you do not owe any taxes and it seems that you will be unable to file on time, you may always seek an extension; however, there is no penalty for failing to do so.
Each month that you file late, you will be assessed a 5% penalty on the total amount you owe. It’s critical to remember that a month does not equal 30 days to the IRS – submitting your return even one day late will result in the entire 5% penalty. While taxes are one of life’s few certainties, you are only human you can forget to consider tax. It is ideal to constantly be prepared while assessing your financial situation to prevent any severe consequences.
The best thing that you can do is start planning on starting your taxes early. Set time aside early one to get an overall sense of how much time you do need. Starting early and planning for setbacks with buffers will help alleviate the stress that comes along with taxes.
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