The only thing worse than filing late is paying late. This is because although the Internal Revenue Service requires that you file your return on or before the due date; the IRS only assesses penalties are on filers who owe tax. Fortunately, the IRS does allow two avenues to assist tax taxpayers who require additional time to file and owe taxes. It is best to familiarize yourself with your options and the associated penalties, so that you can make a decision that best meets your tax needs.
Additional Time to File
An automatic extension of time to file gives taxpayers an additional six months to file their income tax returns. For tax year 2010, the due date for taxpayers who are approved for an extension is October 17, 2011 instead of the original due date, April 18, 2011. To file a tax extension, complete IRS form 4868 and mail it to the address in the instructions for the form. Both the form and the instructions are available on the IRS website. In addition, you can also e-file your extension using online tax preparation software.
Extensions & Tax Owed
An extension of time to file is not an extension of time to pay. You can file an extension if you owe taxes, but the IRS expects you to estimate the tax you owe and pay it when you file your extension. If you do not pay what you owe on or before the deadline, you will be assessed a failure to pay penalty of .5 percent for each month the tax is unpaid. You will also be assessed interest on the unpaid tax.
If you owe, it is best to file on time and then call the IRS at (800) 829-1040 to request a 120 day extension of time to pay the tax. If you are granted an extension of time to pay, then have 120 days from the original due date -- April 18 in 2011 -- to pay the tax in full. Unlike an installment agreement, which requires a $105 user fee, there is no fee for setting up an extension of time to pay. Even though an extension of time to pay does not stop the accumulation of penalties and interest, it grants you the assurance that the IRS will not take collection enforcement action against you during the extension period period. If you cannot pay the tax in full during the 120 day period, then you should call the IRS to set up an installment agreement by completing and submitting form 9465.
If you do not pay the amount owed, request an extension of time to pay or set up an installment agreement with the IRS, the IRS may take enforcement action against you. This could mean a lien or levy may be issued against your assets. A lien secures the IRS interest in your property, while a levy is a legal seizure of your property to pay back taxes.
Denise Caldwell is a finance writer who has been writing on taxation and finance since 2006. Her articles appear regularly on websites such as Gomestic.com and MoneyNing.com. She has taken what she learned while working at the IRS to provide readers with helpful tax and finance tips. Caldwell received a Bachelor of Arts in political science from Howard University.