A frequently asked question in our office is, "If I owe money, should I just file an extension until I can pay it?" The answer is a resounding NO. Here is what you need to know about extensions:
1. They are not an extension to pay. They are only an extension to file your paperwork.
2. If you think you are going to owe money, the IRS expects you to send in a payment with your extension.
3. If you file an extension and don't pay the tax owed by April 15th (or April 18th this year), the IRS not only charges you penalties and interest all the way back to when you should have paid the tax, but they continue to accrue penalties and interest going forward until the debt is finally paid.
What is the solution? Just file the tax return and set up an installment agreement. An installment agreement is pretty flexible. Here is what you need to know about installment agreements:
1. They give you up to 5 years to pay off a debt.
2. You can choose how much you want to pay and what day of the month you want it due.
3. The set-up fee is very reasonable. Currently it is $120. If you elect to have payments debited from your account it is reduced to $52. If you can pay within 120 days, you can eliminate it all together.
4. It is simple to apply for. You have 3 options: File form 9465 by mail, go online to www.irs.gov, or call 1-800-829-1040.
If you do owe tax, you will want to adjust your federal withholding or figure out estimated quarterly payments for the next tax year so that you can avoid owing again in the future.
If you have any questions about estimated payments, what you should be withholding, installment agreements, or any other tax topic, just contact us!