It’s fine if you have the money, but what if you don’t have the money to pay by the due date? Let’s look at three possible scenarios:
Failure to File:
The worst thing that you can do is not file your federal taxes at all. Remember, filing isn’t the same as paying. It’s important to file your taxes by the deadline to avoid the penalty. How late you file determines the fine. It can be up to 25%.
You might be afraid to file your taxes if you don’t have the money to pay. After all, that’s admitting you owe a debt. But, you won’t be kidding anyone – trust me.
If you have the money to pay by the deadline, you are all set. If that is not possible, then work out a payment plan to keep the penalty fees as low as possible.
Failure to Pay:
Failure to pay means that you filed your returns on time, but didn’t make the payment in full by the tax deadline. The IRS will add a monthly percentage to what you owe each and every month until the amount is paid in full, but it is substantially better than the first penalty.
Lastly, interest is charged on the amount you owe if you don’t pay by the due date. At first, the IRS charges 4% but they increase the interest rate every three months.
Preventing a Big Tax Bill
Have your tax preparer look at your withholdings and make any adjustments necessary to owe less next year. If you do your taxes yourself, you might want to consider consulting an accountant.
Remember: you don’t want to over withhold your taxes – that gives the federal government a loan for free. Instead, you want to withhold just the right amount, so if you do owe, it’s a very small amount, and if you get return it’s a very small return.