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When You Need an Extension to File or Pay Your Taxes

Here are the IRS rules you'll need to follow


So, you’re about to miss the deadline for filing your 2015 income tax return or, worse, you don’t have the cash to pay your taxes to the Internal Revenue Service (IRS). Here’s what to do:

Extension to File

If you can’t get your tax return together by this year’s April 18 deadline, there’s always the option of sending the IRS an electronic Automatic Extension of Time to File, Form 4868. That’ll get you six more months.

“It’s rare to be denied an extension,” said Sean O’Hare, a Boston CPA and enrolled agent with the firm Tax Debt Assistance.

The IRS is more flexible than they are sometimes given credit for, but at the end of the day, they are going to protect the government’s interests.

— Lance D. Christensen, CPA

You’ll be in good company; 21 percent of Americans said they’d wait until the deadline to file their tax return, according to a 2016 Death and Taxes survey released by SOASTA, a website and web applications testing company.

The nine-line form is simple: You just provide your name, address, Social Security number, an estimate of your 2015 tax liability, how much you’ve already paid, the balance due and the amount you’re paying now. Just send it in on or before April 17th, because a six-month extension request must be filed prior to the April 18th filing deadline.

“Any mailed extension request should be sent certified mail and the corresponding tracking information should be retained as a safety precaution in the event that the request is lost and needs to be verified later on,” said Kiran Joshi, an attorney and licensed tax professional with the Tax Defense Network in Jacksonville, Fla.

You’ll then need to file your return by October 17, 2016, or you’ll owe a failure-to-file penalty.

As you can tell by the Extension to File form, getting extra time to file your taxes doesn’t give you more time to pay your taxes.

You’ll owe interest on any tax owed but not paid by the April 18 filing date plus a late-payment penalty of ½ of 1 percent per month of any tax not paid by then, with a maximum penalty of 25 percent. That penalty will be waived, though, if you can show the IRS “reasonable cause” for not paying on time.

But failure to file a return or an extension “could result in a 5 percent per month penalty up to 25 percent of the unpaid balance,” said Lance D. Christensen, partner and CPA with Margolin, Winer & Evens, an advisory firm in Garden City, N.Y.

“Penalties and interest begin accruing after the filing deadline of April 18,” said Joshi. “If you need an extension to pay, this is when you may begin exploring your options for an installment agreement.”

Extension to Pay (Installment Agreement)

Similar to a payment plan, an IRS monthly installment agreement is a good idea if you owe taxes of $50,000 or less but are financially strapped and don’t have the cash right now.

You’ll need to file Form 9465, the 27-line Installment Agreement Request (you can do it electronically) and get the IRS’s approval to pay your taxes over time — generally, a maximum of six years. Even if you do get approval, you’ll owe the IRS interest and maybe a late-payment penalty on any tax that isn’t paid by its due date.

Be ready to bare your finances when you complete the form.

“You should come to the table prepared to share information about assets, income and expenses with the IRS because they’re going to need it before coming to an agreement,” said Christensen. “The IRS is more flexible than they are sometimes given credit for, but at the end of the day, they are going to protect the government’s interests.”

You’re eligible for a guaranteed automatic installment agreement if: you’re financially unable to pay the taxes due in full now; the tax you owe is less than $10,000; during the past five years, you’ve filed all your income tax returns on time and paid any tax due and, finally, you agree to pay the full amount due within three years.

The IRS will determine your repayment terms within 30 days,  based on your income and what the agency considers “basic living standards” where you live. “There is no prototypical monthly payment,” said Joshi. “It’s subjective and based on the taxpayer’s debt, income and expenses.”

If there’s a chance that an installment agreement would compromise your basic living standards, said Joshi, you may qualify for Currently Not Collectible status. “This prevents you from enduring collection activity and avoiding a tax bill payment until your finances improve,” he noted.

But don’t look for benevolent leniency. “Congress is making the IRS do more with less money these days so the IRS is no longer nice,” said O’Hare.

Once you and the IRS settle on a payment plan, pay the $120 fee for it ($52 if you agree to have the payments debited directly from your bank account) and make sure you stick with the plan. “Defaulting on an IRS approved installment agreement can send a taxpayer back to starting the process all over again,” Joshi said. “Any arrangement with the IRS needs to be followed carefully.”

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