Filing and/or Paying Late


Just because you have prepared the return early does not mean
you have to file it before it is due on April 15th.  And even
if you choose to file it early, the payment isn’t due
until April 15th.


Although we do everything we can to encourage our clients to file as early as possible inevitably more than half our business comes in during these last few weeks of the tax season.  Just as inevitably all too many of these taxpayers delay their appointments because they are afraid they will owe.

Come in and see us as early as you can, ESPECIALLY if you think you may owe on April 15th. 

We appreciate you may be afraid to find out what the amount is but by knowing a month or two ahead of the deadline of April 15th, you have time to find ways of paying as much of the bill as you can.  Just because you have prepared the return early does not mean you have to file it before it is due on April 15th.  And even if you choose to file it early, the payment isn’t due until April 15th.

Even if you don’t find out your tax situation until just a few weeks left before the deadline, confirming your true tax circumstances can be a big asset to you.  Obviously the best news you can hear, something the vast majority of our clients discover, is that your fear of owing was just that, an unwarranted and needless fear that hung over you like a dull cloud of doom. 

But what should you do if it turns out you do owe and you haven’t saved anything in anticipation of the problem?  In general, assuming there is no one available to assist you with these debts, you have two options.  You can get into a payment plan with the taxing entity (state or IRS) or you can usually have the debt transferred to credit cards.

To learn your options with a credit card you can go to the IRS website (www.irs.gov) and search under “credit card payments”.  The IRS has chosen to stay out of the credit card collection process by establishing relationships with several service providers offering varying rates from just $3.95, if you use a debit card, to charging 1.9% to 3.89% of the amount you are placing on a credit card. 

WARNING: These figures change year to year and may vary from provider to provider.  They are presented only to offer you a basic understanding of the process.

For example, if you owe $2,000 you may be asked to pay from $38 to $79 by the service provider.  This is on top of the yearly interest rate your credit card may be charging you.  You should also consult your credit card company to learn if they consider these charges to be considered cash transactions, which could result in a higher interest rate. 

According to creditcards.com the national average for interest rates was close to 15% for “normal” credit and as high as 24% for those with “bad” credit.  Paying off that $2000 debt over a single year at 15% interest would cost you an additional $166.00 and as much as $269 at a 24% rate (these are approximate figures based on average payments) plus the service provider fee.

If your credit card is not an option then most states and the IRS will permit you to sign up for an installment payment plan.  Depending on your credit rates, you may find the IRS plan is actually a better deal for you.  Although the IRS reserves the right to decide who they will allow to get on their plan you usually have to be way behind on your taxes to be declined. 

If the installment agreement is approved the normal cost to participate in their plan is $105 but if you allow the IRS to take the payments electronically through electronic funds withdrawal from your bank account that fee is reduced to $52.  On top of that fee the IRS charges both interest and late payment penalties, currently at about 9% per year, based upon the outstanding amounts you owe each month.  Obviously paying off the debt as quickly as you can is to your benefit.

In some cases you may be able to avoid requesting an installment agreement if the amount you owe is not considerable or if you have the resources to pay the debt within a few months.  The IRS will generally allow you up to 120 days to pay the outstanding debt without the need for an installment agreement although they will still charge you late payment penalties and interest on the outstanding amount during that time. 

Always try to file your tax return on time to avoid a late filing penalty (not to be confused with the late payment penalty) and if possible pay the full amounts you owe.  If you have to make a choice we suggest that you pay off your debts with any states first as they seem to be more aggressive with their collection processes.  In addition they may have greater fines/interest for late payments.

BEWARE MISUNDERSTANDING THE VALUE OF AN EXTENSION!

Something important to keep in mind is the misunderstanding that filing an extension will avoid having to pay any taxes that are due April 15th.  If you haven’t paid the taxes, then these fees are still applicable.  Although you will probably be able to avoid the late filing fee (the IRS reserves the right to invalidate an extension if the amounts you stated on the form are significantly greater on your final return), the interest and penalties will still be accessed from April 15th on any outstanding debt. 

In other words filing an extension won’t necessarily save you any money unless you fill out the form properly.  Because of the vagaries of your career as an actor; different income each year, different sources, different amounts of deductions, etc., to do so usually requires you to go through the same process required to finish your normal tax return. If you have gone that far then why not file the actual return?

Extensions are usually used by those taxpayers who have a similar income and expense situation from year to year, but for one reason or another, late tax forms, missing corporate papers, etc., can’t get their final returns prepared by the deadline.   

You may think you are able to put off making your payments for a few months, but if you owe taxes in the end, it will probably cost you more by filing the extension.

At best, the filing of an extension, assuming it is properly filled out, should allow you to get by without having to pay a Late Filing Penalty:

Late Filing Penalty

A late filing penalty is usually charged if your return is filed after the due date (including extensions). The penalty is usually 5% of the amount due for each month or part of a month your return is late. The maximum penalty is 25%. If your return is more than 60 days late, the minimum penalty is $135 or the balance of the tax due on your return, whichever is smaller. You might not owe the penalty if you have a reasonable explanation for filing late.

In addition to the possible late filing fee, if you haven’t paid the full amount you owe you will have to deal with the Late Payment Penalty:

Late Payment Penalty

The late payment penalty is usually ½ of 1% of any tax (other than estimated tax) not paid by April 17, 2016. It is charged for each month or part of a month the tax is unpaid. The maximum penalty is 25%.

If you properly file an extension, meaning at least 90% of what you owe on your final return has been paid by the filing deadline (usually April 15th) then you will not be charged the late payment penalty.  If you owe more than 90% when you file your final return, you don’t file the return by the extension deadline or you haven’t filed an extension at all, then you will have to deal with the Late Payment Penalties.

On top of everything you may owe, plus the penalties, there will be interest.

Interest Rate

The interest rate being charged by the IRS is 3% per year on whatever remaining amount was outstanding including the penalties.

Can't pay your tax bill?

For people who find they don't have the money to pay their tax bills, experts have this advice:

  • Pay as much as you can when you file your taxes.

  • Consider asking the IRS for an installment agreement to pay over time.

  • Look for other sources of payment, including putting the bill on a credit card. But, beware of the interest rate the credit card company charges — it is usually higher than the one charged by the IRS.

  • Some 401(k) plans allow hardship withdrawals to pay taxes. However, these distributions are taxable and may be subject to penalty. In general this is not a good idea.

  • Ask the IRS for a short-term hardship extension, using form 1127. However, the installment payment or other extension options are usually easier to obtain.

  • Offer to settle the tax liability for less than the full amount owed. This "offer in compromise" is difficult to obtain. To get it, there must either be doubt that the full amount could ever be collected; doubt that the tax liability is correct; or what is called "effective tax administration," with exceptional circumstances. To be eligible for compromise in such a case, the taxpayer must demonstrate that paying the full amount would create economic hardship or would be unfair and inequitable.


2017