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October 10, 2014


Time is almost up if you requested a tax-filing extension

The tax deadline that most worry about is April 15. However, if you filed for a six-month extension back in the spring, you only have several more days to file your 2013 tax return before the October 15 deadline.

Any taxes that you owed for the 2013 tax year were due by the April deadline even if you got an extension to file. The failure-to-pay penalty may have been running, but is only .5 percent of your unpaid tax bill each month.

It is important to file a return before the October deadline to avoid the higher failure-to-file penalty. This penalty is five percent of your unpaid tax bill each month you are late filing your tax return. Each of the penalties goes up to a maximum of 25 percent. Interest may also accrue on an unpaid tax bill at three percent.

To minimize penalties it is a good idea to file a return even if you still cannot pay your tax bill in full. You may also be able to work with the Internal Revenue Service to set up an installment agreement that would divide payments over 72 months.

If your circumstances have changed and something like an illness prevents you from paying your tax bill in full, an offer in compromise might provide relief. You can settle your tax debt for less than the full amount owed through the program, but only if paying the full amount would create a financial hardship. Before granting this relief, the IRS reviews ability to pay, asset equity along with income and necessary expenses.

When you owe a substantial amount of back taxes, a tax attorney can discuss available options and may be able to help negotiate an installment agreement or reduction in the amount owed.

Source: Money, “5 Things to Know If You Still Haven’t Finished Last Year’s Taxes,” Ellen Stark, Oct. 9, 2014