Residential Real EstateIncome Taxes: EEEEK!
Still don’t have your Federal taxes completed? Eeeeeek! The IRS loves you when you do that.
That’s because they get to penalize you even more money for submitting a late return. If you do not pay your taxes before midnight on April 15, 2003, interest will begin accruing on the unpaid taxes starting on April 16th. The interest rates are currently 8 percent for federal and varied rates for late payment of state taxes.
It gets worse. You could also be assessed a late payment penalty. The federal penalty is Ѕ percent per month of the unpaid tax up to a maximum penalty of 25 percent. The IRS, however, can waive this penalty if the taxpayer can show reasonable cause for not paying the tax on time. (Short of being a prisoner of war, though, you had better have a terrific excuse.)
Maybe you need to ask for an extension. Here’s how it works: if you can’t file your return by April 16th, then apply for an automatic four-month extension of time by filing Form 4868 with the IRS. Note, however, that this is an extension of time to complete your return, not an extension of time to pay your taxes. You must have paid all of your taxes by April 16th. Any tax you think you may owe can be sent in with Form 4868 for federal taxes. Be sure to attach a copy of form 4858 to your state return, too.
What if you don’t file for an extension? Or what if you file your return after your extension has expired? In those cases, you will have to pay additional penalties on any taxes due. Is this something you do not have to worry about because, after all, what are a few percentage points???? Think again! The federal late filing penalty in these cases is 5% per month of the unpaid taxes up to a maximum penalty of 25%. Whoa! This is getting scary, now. And if your return is more than 60 days late, you will be assessed a minimum penalty of the smallest of $100 or the balance of tax due.
What if you just cannot afford to pay your taxes? Then you should still file your return by April 16th. Moreover, when you do you should pay as much of the tax as you can. When you file on time, you avoid paying a late fee. You will, however, still be assessed interest and possibly late fees on the unpaid balance.
What about making payments instead of paying your amount due all in one lump sum? You can. Just request paying your federal tax in installments by completing Form 9465.
An alternative to making installment payments is using your credit card(s) to make payments. With this, the IRS processing agent will charge you a service fee over and above the taxes you are paying. You also get to pay the finance charges your credit card bank exacts.
A better way? Consider a personal or home equity loan at a relatively low interest rate to pay your taxes. However, carefully calculate the additional interest costs before paying your taxes by either of these methods.
What about your state taxes? Go to the state treasury Web site for your state and look up their tax rules and procedures for late or partial payment of taxes. For example, visit California rules about late payment HERE. http://www.taxes.ca.gov/pastduebus.html
Once you get behind with the IRS, you are on the road to much trouble. They are going to make you pay and they have hearts of stone when it comes to most “excuses” you provide. So do all you can to be on time and as complete in your payments as possible.
For more info, visit the IRS site HERE.
To find all the state tax sites, go HERE.