Everyone who likes to file their tax returns, raise your hand! That’s what we thought.
Filing taxes is massively stressful even if you have prepared. It’s even worse if you are unable to pay your tax bill. Know that you’re not alone, and there are tax planning strategies you can take now if you cannot pay the tax balance that is due.
The following are practical tax planning strategies when you can’t pay your tax bill:
- File your tax return on time. Even if you cannot pay it all, file your tax return by the deadline. Failing to file can result in penalties and additional fees, which will only add to your financial burden. Filing on time means that you avoid complications and show your willingness to fulfill your tax obligations.
- Review your tax bill. Carefully review your tax bill. Make sure it’s accurate. Mistakes happen. Regardless, make sure you file as you don’t want to pay more than you owe. Double-check all calculations and cross-reference the information provided with your records. If you see discrepancies, contact the IRS or state tax authorities promptly to resolve the issue.
- Explore payment options. The IRS and your state’s tax authorities know that everyone cannot pay their tax bill in full immediately. So, they offer several payment options to accommodate different financial situations. Those options include:
a. Installment Agreement: You can request an installment agreement that allows you to pay your tax debt in monthly installments. The IRS or your state tax agency will work with you to determine a reasonable payment plan based on your income and expenses.
b. Offer in Compromise: You may be eligible for a compromise offer that allows you to settle your tax debt for less than the full amount owed. This option is only available if you can prove that paying the full amount would cause significant financial hardship.
c. Temporarily Delay Payment: If you’re experiencing a temporary financial hardship, you may be able to request a temporary delay in payment until your situation improves. During this time, penalties and interest will continue to accrue, but it can provide you with some breathing room to get back on your feet.
- Communicate with the Tax Authorities: Start communication with the tax authorities is vital when you’re unable to pay your tax bill. Contact the appropriate agency as soon as possible to discuss your situation and explore available options. Ignoring the issue will only lead to more severe consequences, such as liens or wage garnishments.
- Consult a Tax Professional: Navigating the complex world of taxes can be challenging, especially when you’re facing financial difficulties. Seeking guidance from a qualified tax professional, such as a tax attorney or a certified public accountant (CPA), can provide you with valuable insights and help you make informed decisions. They can analyze your situation, explore all possible options, and negotiate on your behalf with the tax authorities.
- Adjust Withholdings: If you are unable to pay your tax bill this year, review your withholdings and adjust them. By increasing your withholdings, you’re paying a more accurate amount throughout the year, reducing a significant tax bill next time. Consult with a tax preparation professional to determine the optimal withholding amount based on your financial circumstances.
If you are unable to pay your tax bill it can be overwhelming, but you can take steps to resolve it. By filing your tax return on time, reviewing your bill for accuracy, exploring payment options, communicating with tax authorities, seeking professional guidance, and adjusting your withholdings, you can navigate this challenging scenario. We recommend hiring an accountant or a tax professional to help you with your tax returns or to represent you to the IRS or state tax department.
A.K. Burton, PC, has been working with the IRS for our clients for many years. Our firm has experienced accountants who can help you do your tax planning and file your tax returns and represent you to the IRS. We do individual and business tax returns. Call us at (301) 365-1974 for a consultation.
We serve the Bethesda, Rockville, and Montgomery County, MD area.
*** You can find out about tax payments and other tax information on the IRS website.
As we write this blog today, April 18-Tax Day 2022, has passed. The deadline to file for most US citizens is over.
You read this and say, “I missed the deadline. Now, what do I do?”
The good news is that if you missed filing on April 18, then you have options. All is not lost and no, there won’t be any black helicopters landing in your backyard. You can still file, so all is not lost.
In fact, here are some steps you can take that will resolve your tax filing deadline miss situation:
- If you owe money on your 2021 tax return and have not filed an extension: You should file your tax return as soon as possible. The IRS hands down two penalties if you owe: failure-to-file and a late payment penalty. Failure-to-file penalty applies when your return is late. It is five percent (5%) of your unpaid tax bill for each month or partial month your return is late. It maximizes to twenty-five percent (25%). The late payment penalty is 0.5% of your unpaid tax bill for each month or partial month your return is late, up to a total of 25%. The bottom line is that the quicker you get your tax returns filed after the deadline and pay your bill, after being late, the smaller the penalty you will have to pay. However, if you are unable to pay your tax bill in full, you can request the IRS to put you on an installment plan. It doesn’t erase your late penalties, but it will protect you from the IRS garnishing your wages. Just keep in mind, that the longer it takes for you to file your return, the greater the late payment penalty.
- If you don’t owe money for your 2021 tax returns: You may be due a refund from last year’s returns, but you missed the April 18 deadline, anyway. Believe it or not: You’re safe. You will not be penalized. You will have to wait longer to receive your tax refunds, though. Nevertheless, file your tax returns soon so you can get your money back.
- Missed deadline unknowingly: That’s okay, too. Just submit your return as soon as you can. Next year, if it looks like you may be filing your tax returns late again, ask for a tax extension by the filing deadline. *** You then have six more months to file your return. If you request the extension and still don’t get your return completed by the deadline, a late payment penalty will apply to any unpaid taxes from the current tax year. You won’t be charged with the aforementioned failure-to-file penalty as long as that extension request is made on time. And you don’t even have to give a reason to be granted an extension. The IRS doesn’t ask why you need more time to file.
So, you see, it isn’t “Doomsday” after all. You do have options. Just be sure to act quickly to save yourself money and stress.
AK Burton, PC, knows the current tax laws and how to work with the IRS. Our experienced tax preparers can file your business and personal tax returns and represent you to the IRS. Call us at (301) 365-1974 for a consultation.
We serve the Bethesda, Rockville, and Montgomery County, MD area.
*** If you’d like more information on IRS Tax Return extensions, visit the IRS website.
By the time you read this blog, Monday, March 16, 2020, will be even closer! No, this is isn’t “Mr. Obvious” talking here. It’s your business tax advisor sending you a notice to get on it to avoid IRS fees and penalties.
Why is this date so important? If you own an S Corp or a Partnership, your taxes are due at that time. (Normally it is March 15 but that is a Sunday so it was moved to Monday.)
Here are the business tax returns and their due dates:
- S corporation returns must be filed on Form 1120S with Schedule K-1 for each member: March 16, 2020.
- Partnership returns file a partnership tax return on Form 1065 with Schedule K-1 for each partner: March 16, 2020.
- Multiple-member LLC returns filing as partnerships file on Form 1065 for the partnership and give Schedule K-1 to each member: March 16, 2020.
So, be proactive and take action now. Here are six things you need to send to your tax advisor so they can file it on time for you:
- Year-end bank/credit card statements: Compile all of your bank and credit card statements. These should show all of your purchases and monthly statements.
- Payroll tax reports: IRS Form 941 is used to report the federal income tax, Medicare and Social Security amounts you withheld from your employees’ paychecks. Also, report your portion of Medicare and Social Security on this form. Employers are responsible for making federal unemployment tax contributions. You will pay taxes on the first $7,000 earned by each employee. Employees are not allowed to contribute to your unemployment tax liability, so you cannot deduct the tax from their wages. It is filed on Form 940.
- QuickBooks (or other copy of your books) copy if you have one: A copy of all your business bookkeeping. If it is Quickbooks, you send a copy of the bookkeeping records to your small business accountant.
- Last year’s business return (new preparer only): If you have a new accountant, you need to include a copy of last year’s tax return. This will save, and your bookkeeper, a lot of time. You may be spared phone calls and emails from them as they can use it as a template for this year’s return.
- Vehicle mileage (total & business): Submit all of your vehicle business mileage. Include business mileage and total mileage. (You may want to use an app to record all of your business mileage.)***
- Details on large business purchases: Did you purchase a vehicle for your business? (truck, car, motorcycle, etc.) You may have purchased smartphones, copiers, printers, computers, cameras, etc. Any large business purchases need to be reported.
You have enough time to get these records to your tax advisor for them to complete the forms and file them with the IRS. Please don’t delay. It will save you time, money and a phone call from the IRS, which nobody wants.
A.K. Burton, PC, has experienced tax advisors who can advise, complete and file all of your business tax returns by March 16. Call us at (301) 365-1974 for a consultation. We serve the Bethesda, Rockville and Montgomery County. MD area.
***A list of business mileage apps can be found here.