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File your taxes even if you can’t pay them

//File your taxes even if you can’t pay them

File your taxes even if you can’t pay them

With failure to file penalties greater than the failure to pay penalties, it is in your best interest to file your taxes even if you cannot afford to pay them.

Jeffrey S. Freeman, J.D., LL.M

Times are tight so you think you’ll skip worrying about taxes this year – WRONG. No matter your current financial situation you will improve your future financial state by filing your taxes. Even when payment may not seem like an option, you will lower your penalties by filing your return on time with the IRS.

Penalties

  • Failure to file – this penalties accrues at the rate of 5% per month, up to a maximum of 25% of the amount of tax your return would show you owe.
  • Failure to pay – accrues only a 1/2% per month, up to a maximum of 25% of the amount actually shown due on the return.
  • When both penalties apply the combined penalty remains at 5% for the first five months and thereafter can continue to grow at 1/2% per month for 45 more months, with a potential for a 47.5% penalty over time.
  • Interest – In addition to the above penalties you will be charged interest for late payment. An additional penalty is also added for each year missed, typically 3% above the fluctuating federal short term interest rate for the given time period.

Once you have filed your taxes you can better determine how you can manage to pay them. Several options exist and you may have to get creative, but remember not doing anything will not make the problem go away.

Undue Hardship extensions – To qualify for such an extension you need to show that you do not have enough cash and assets convertible into cash in excess of current working capital to meet your tax obligations. You must also prove that you are unable to borrow the amount needed except on terms that would inflict serious loss and hardship. If you qualify you will be given an extra six months to pay your taxes.

Borrow Money – Loans from family and friends are the first method to explore since interest rates will likely be low. Interest on loans to pay taxes is not tax deductible, so you may want to explore a home equity loan. The loan interest payments will be tax deductible and will likely carry an interest rate comparable or lower than other alternatives.

Installment Agreement – Another alternative is to agree to pay the IRS in installments. With low fees for individuals with low income, this is a viable alternative and can be entered into after a hardship extension. The IRS sets the terms and if you miss a payment they can break the contract.

About Freeman Tax Law

Freeman Tax Law (FTL) is a boutique law firm consisting of a multi-disciplinary team of tax professionals including tax attorneys, CPAs and a professional staff that have vast experience with foreign tax compliance and regulatory matters for financial institutions. FTL consults with both FFIs and USFIs with regard to Foreign Account Tax Compliance Act (FATCA) and related regulatory matters and assists them developing procedures on how to comply with these laws. FTL provides a multidisciplinary approach for filing offshore voluntary disclosures. Working to help clients prevent future tax headaches we offer a complete wealth management and estate planning team. As an experienced firm with wide reach, Freeman Tax Law provides immediate assistance to our clients planning for and resolving all tax related challenges.

Freeman Tax Law

(855) 935-5945

info@freemantaxlaw.com

www.freemantaxlaw.com

By | 2017-01-01T11:26:49+00:00 November 12th, 2014|Freeman Tax Law|Comments Off on File your taxes even if you can’t pay them