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April, 2004 Tax Tip

What To Do If You Canít Pay Your Tax Bill By April 15th

Many taxpayers who are short on funds when their taxes are due tend to delay filing their tax return or n extension. This is unwise and should be avoided.There is a failure-to-file penalty (5% per month or fraction thereof) of the balance due for up to five months) that is applied to taxpayers who miss a filing date without a proper extension for filing their return.

Note: A taxpayer can put off filing a return ó and avoid the failure-to-file penalty ó by getting an automatic extension to file (up to four months) by filing Form 4868.One important caveat:The estimate of the tax liability you show on Form 4868 must be reasonable, or the extension can be retroactively revoked.

If a taxpayer doesnít have the funds to pay the tax due at the time of filing (either the return itself or the extension request), he or she should still file on or before the due date and pay as much as possible to reduce the interest and penalties as well as to show good faith.

Note: In addition to the failure-to-file penalty, there is also a less expensive penalty (1/2 percent per month or fraction thereof) for failure to pay tax on time. This penalty doesnít apply during the four-month extension period of Form 4868, if at least 90% of the ultimate tax due is paid by the return due date, through withholdings, estimated tax or with the Form 4868.

TIP: If you have not filed a tax return for a previous year, your problem may not be as great as you think.It is normal for people to lose sleep over such things.If you call me, perhaps I can help put your mind at ease.

Where a taxpayer cannot, in good faith, pay the tax, IRS will generally work out a payment schedule after it has reviewed the taxpayerís financial condition.In addition, an installment agreement (Form 9465) can be submitted with the tax return.On this form, the taxpayer indicates the amount, if any, he is remitting with the return, and indicates the monthly payment he agrees to make and the date of each month he wishes to make it.In most of these cases, the taxpayer's financial condition is not reviewed.


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