At FJ Koelle & Associates, we work with our clients in the Greater Philadelphia area to help them prepare for their taxes, find ways for them to reduce their taxes, and in the case of businesses, help them estimate and file their quarterly installments. New clients who have not been working with an accountant, however, often find themselves in a financial bind when tax time comes around. Some are unable to pay their tax bill.
Whether your tax bill is larger than expected, you missed a quarterly payment, or you just don’t have the cash, there are ways to limit penalties and interest charges and pay down your tax bill. While you can work with the IRS directly, most people feel much more comfortable allowing an experienced tax accountant to negotiate with the government and help them get the best possible solution.
What NOT to do
Most importantly, do not avoid the problem, and do not delay filing your taxes on time. The penalty for not filing is TEN TIMES greater than the penalty for not paying: 5% vs. 0.5% – per month. To give a simplified illustration, if you owe $5,000 and you don’t file on time, your penalty for not filing will be $250.00 per month, while if you file but don’t pay, the penalty will be $25.00 per month. Interest charges are in addition to these penalty charges.
When you file, pay as much as you can in order to decrease potential penalties and interest charges. Many people make the mistake of thinking that if they file for an extension, they also get an extension in paying. This is not true. The IRS wants its money by April 15, whether you have all your tax details together by then or not. So even if you request an extension in filing your detailed tax report, pay what you estimate you will owe or as much as you can at the time that you request the extension.
What you CAN do
There are a variety of options to pay off your taxes if you can’t pay them all by tax day. First and perhaps the easiest is to wait until April 15 to file. There is no point filing in March if you don’t have enough money to pay. Keep saving up and wait until tax day (or the day before) to submit your taxes and pay as much of the tax bill as you can afford.
Work with a competent accountant to help you negotiate with the IRS to create a reasonable payment plan. In some cases, the IRS will waive penalties, and in extreme cases, arrange an offer in compromise. The IRS could also temporarily delay collection by classifying your account as “currently not collectible” until you can pay. This is why it’s an advantage to work with an expert who will know what benefits the IRS is willing to give.
The IRS can only waive penalties, not interest, so consider that cost when you are determining how to get the money to pay the bill. When considering options like borrowing from a home equity line of credit or paying with a credit card, compare the interest and penalties on those vehicles versus what you are paying on your tax balance. A penalty-free option is to sell an unneeded car or various items around the house. Your tax accountant could help you brainstorm other options, gleaned from years of experience helping other people in your situation.
Avoid future problems
At Koelle, we help our clients avoid tax surprises by helping them make wise decisions throughout the year that will keep more money in their pockets. We help businesses accurately calculate expected taxes to submit quarterly payments that are manageable. If you live or work in or around the Willow Grove, PA area, come in and find out how we can help you.