File your return even if you can't pay your taxes; there are options
— -- You're unemployed, behind on your mortgage, and a guy wearing an Ultimate Fighting Championship T-shirt wants to repossess your car. Could it get any worse? Sure. You could owe money to the IRS.
You're unemployed, behind on your mortgage, and a guy wearing an Ultimate Fighting Championship T-shirt wants to repossess your car. Could it get any worse? Sure. You could owe money to the IRS.
Even if you don't have much money, you could owe taxes this year. Some reasons:
•You collected unemployment benefits last year. Unemployment benefits are taxable.
•You took withdrawals from your 401(k) plan or individual retirement account to pay the bills. You'll have to pay income taxes on the money you took out. You may also have to pay a 10% early-withdrawal penalty.
•You worked as a freelancer or consultant. If you didn't have taxes withheld, you'll owe income taxes and self-employment taxes on that income.
Even if you can't pay your tax bill, you should file your return by April 15, says Benson Goldstein, senior manager, taxation for the American Institute of Certified Public Accountants. Filing your return will start the clock on the federal statute of limitations, which gives the IRS 10 years to collect unpaid taxes. If you don't file, the IRS can pursue you indefinitely, he says.
In addition, you'll face failure to file and late payment penalties. The total penalty for failing to file and pay your taxes can run as high as 47.5% of the amount you owe.
If you're convinced you won't be able to come up with the money you owe by April 15, you have options:
•Request an extension to pay. In some cases, the IRS will give taxpayers a short-term extension on the payment deadline. For more information, call the IRS at 800-829-1040.
•Pay by credit card. The IRS, like most major businesses, accepts plastic. You'll have to pay a "convenience fee" of 2.49% of the balance. And if you don't pay off the balance by your credit card's due date, you'll owe interest. For more information about paying by credit card, go to www.officialpayments.com or www.pay1040.com.
