For the average American, few problems can be as annoying to deal with as tax problems and scenarios. Taxation issues can leave us with a headache and a huge amount of issues to get over, but it can also leave us dealing with a range of extra fees and late payments that we never accounted for. However, taxes do need to be dealt with and if you are wondering if you can just get by without, you would be wrong.
All taxes should be paid by April 15th if you can, or you should at least have clear notice and discussion to set up a fairer payment plan and deadline.
If you fail to pay your taxes by the 15th then it’s likely that the IRS will treat you as a late payment individual. Immediately this means that you get sent a late payment penalty as well as accrued interest charges which will increase for every month that you do not make the payment back. This can, without a doubt, become a burden around the neck of even the most financially secure of individuals.
If you would like to avoid this problem, you should almost certainly look to pay your taxes by the deadline on the 15th. A failure to do so can really become more hassle than it’s worth.
What are the penalties?
Typically, your late payment penalty will be a rather gruesome 0.5% on top of what you owe in unpaid taxes, and will be assessed monthly. It could be as much as 25% when things go really wrong, leaving you in a position whereby your taxes soon become unaffordable in the extreme
So, if you owed $2,000 in unpaid taxes, you could be charged as little as $10/month in late fees. However, it could be much higher – well north of $500 if you really mess around the authorities.
If you still owe tax 10 days after you receive a Notice of Intent to Levy letter by the IRS, you are officially in trouble. This increases the penalty to 1% of your fees. If you did file on time and you beat the deadline for the levy, then as a “reward” you get to reduce your arrears to just 0.25% penalty fees.
Can penalties be avoided?
Yes, they can. If you file an extension on time and pay as much as 90% of your liability with your extension, you can essentially avoid all late fees that can come at you. This is very useful for making sure that you stay on top of your finances and that you can make a genuine effort to solve the problem.
IRS will also charge interest on all outstanding tax balances, so you want to avoid as many late fees as you can as they all add up. When things are already tight and you are struggling to find an amicable solution amongst both parties, you would do well to bring in the help of a professional tax preparer for strategizing.
