Published on 7/10/2020
July 15 is also known as the dreaded ‘Tax Day’ to most citizens.
Tax Day is knocking our doors with less than a week to go. The original Tax Day was supposed to be April 15, 2020. But then, the pandemic took place, and turned our lives upside down. The Treasury Department then decided to push the deadline for filing taxes for the financial year 2019-20 to July 15. The extension gave taxpayers a whopping three months to get their finances in order and file their taxes.
The news of postponement brought joy to people who had lost jobs due to the pandemic or were working at pay cuts; unable to make ends meet. People were expecting another push to the deadline since the worst does not seem to be over just yet. However, as daunting as it sounds- there is no further extension to filing taxes. July 15 is the last day that you can file your taxes without being penalized.
Many taxpayers have already paid their dues to the Government. Many are planning to somehow make it happen by July 15. But there also are people who will default on their taxes and will not be able to make payments on time. Nevertheless, there is still no reason to fret about it. If you’re one of the many people who might not be able to pay taxes by July 15; take a deep breath and read on to know what you can do.
File for an extension immediately.
As per a survey done by TaxAudit in June, 37% of Americans said that they did not have means to pay their taxes by July 15. Which means, more than 1/4th population in the country may default on their tax payments.
If you think you’re one such person who may not be able to pay their taxes, it is better to file for an extension with the IRS. Registering for an extension is the first thing you should do if you’re uncertain about making the payment. The extension will give you a grace period till October 2020 to clear your dues, but a 0.5% penalty may be charged.
However, in case you do not file for an extension and end up not paying your taxes by July 15, an interest worth 5% will be charged on the tax amount you owe. Thus, file for an extension immediately if you think you cannot make it.
Use tax deductions to reduce the tax amount owed.
There is still time to get in touch with a tax expert and reduce the amount of tax you owe to the Government. If you haven’t filed your paperwork yet, you may be entitled to a significant tax deduction. For instance, if you spent money on IRA, 401 (k), charities, childcare or have student loans, you may be eligible for certain tax exemptions.
These deductions will bring the tax amount down. Chances are, a lower tax amount after deductions may be payable in these circumstances. –
Consider Payment Plans by IRS!
The IRS has the following payment plans that could help you if you cannot pay your taxes by July 15.
Payment by monthly instalments IRS allows you to set up a monthly instalment plan if you feel you cannot pay a considerable tax amount in one go. You have two options to choose from:
- Automatic withdrawal: The monthly installment of the tax owed will be automatically deducted from your account each month. For setting up the plan, a one-time cost of $31 has to be paid, which will be waived off if you are a low-income earner. However, you will have to pay interest and penalty.
- Self-payment: Payment of monthly tax installment will be initiated by you and will not be automatically deducted. The setup cost will be $149, excluding interests and penalty charges. For low-income individuals, the setup cost will be $43, which is subject to reimbursement.
- Short-term payment plan
You get 120 days to pay the full tax amount owed in addition to penalties, interest fees and other charges. There will be no setup charges for 120 days after which, you’ll have to pay set up costs.
Get a loan by a friend/kin.
If a family member, relative or a friend agrees to loan you money without any interest, take it as soon as you can to pay off your taxes, so they don’t become a debt to you.
[Last resort] Offer in a compromise.
If you see all doors shutting for you and have a humongous tax bill to pay, this plan may be your best and last shot at making it work. Which is why it’s called ‘last resort’.
The process is very lengthy, not easy, and there are chances of rejection as well. But you have to try.
For this, you will have to get in touch with the IRS, prove to them with extensive financial records that there is no way that you can pay your dues. All of your paper trail, documentation, ledgers and assets will be scrutinized with a fine-toothed comb by the IRS to decide if your claim is legitimate or not.
If the IRS decides that your financial condition in no way allows you to pay taxes at the moment, they may temporarily extend your grace period for tax filing. You can start paying your taxes in full once your financial condition stabilizes. However, you will be charged with late fees and interest fees.
The situation may look grim at the moment but know that this is a part of life and no matter what, life goes on. The Treasury has many options in case you are going to be unable to do your taxes in due time. For more tax-related concerns, email your queries to us at C19grants@mytaxfiler.com.