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Published April 2006
Filing
or paying taxes late: The reasons for failing to file and/or pay taxes are many — personal problems, illness, a death in the family, loss of financial records and so on. But you can’t ignore the IRS forever. Eventually, it will catch up with you, and the outcome can be harsh. So what do you do? Late filing For complex returns, get professional help preparing delinquent returns. If you don’t file, the IRS can prepare a “substitute” return for you, which might not give you credit for all your rightful deductions and exemptions. Also, you may have a refund coming, which will be lost if you don’t file within three years of the due date. If you’re self-employed, you must file within three years of the due date in order to get Social Security credits toward your retirement. Late payment If you don’t pay, the IRS could take serious collection action, such as levying bank accounts, wages or other income, or taking other assets. A Notice of Federal Tax Lien could be filed, negatively affecting your credit rating. Consider use of credit cards, home equity, 401(k) or life insurance loans to pay the tax. Pay as much as possible to minimize the interest and penalties. Then, write to the IRS to explain your situation and request an extension of time to pay or an installment agreement. The IRS can offer extensions from 30 to 120 days depending on the situation. Use IRS Form 9465 to request an installment agreement. An installment agreement for up to three years is generally approved if the tax you owe is not more than $10,000. Interest and penalties continue to apply. For very large tax bills, consider an offer in compromise. This is a sophisticated technique that amounts to a negotiation with the IRS to pay less than the total tax due. Professional consultation is strongly advised. The moral of the story is to file all tax returns that are due, regardless of whether or not you can pay the tax due. Pay as much of the tax on time as you can, and don’t ignore Big Brother — he will catch up with you! Mary Decker is a CPA, Certified Financial Planner and a principal of Hascal Sjoholm & Co., a full-service CPA firm in Everett. She specializes in tax and estate planning. She can be reached online at www.hascal.com or at 425-252-3173. |
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© The Daily Herald Co., Everett, WA |
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