NEW YORK (AP) - There are worse things than having to file your incometaxes -- and one is not filing.
Financially pressed Americans might think that if they can't pay whatthey owe on April 15, they can buy time by not filing their tax forms.That could be a very costly mistake.
The penalty for failing to file a tax return on time is a hefty 5percent per month on the amount owed, up to 25 percent. That couldrapidly turn a tax bill of $1,000 into one of $1,250.
"Frankly, the last people I'd want to mess with are the people at theIRS -- even the kinder, gentler IRS," said Steve Rhode, president of Myvesta.org."They can attach your wages, they can put liens on your property. Theyare the most powerful people on the planet, besides God."
The advice from Rhode and other experts is to file that return, andthen figure out how to pay your tax as quickly as possible.
Rhode, whose credit counseling service is based in Rockville, Md., saidself-employed people and independent contractors are among those mostlikely to have problems because they often don't set aside enough fortaxes when they get paid. Others are families on tight budgets thatsqueak by month-to-month in part by underwithholding taxes from theirpaychecks.
"All they're doing is pushing their financial problems off to thefuture," Rhode said. "Come April 15, they have to be dealt with."
What should people do? They can take out a personal loan or put their tax bill on a creditcard. They can make a partial payment to the IRS, then pay the balanceoff over time. Or they can enter into a formal installment agreementwith the IRS. The IRS makes it clear up front that the government should not be thetaxpayer's lender of choice. "Before requesting an installmentagreement, you should consider other less costly alternatives, such asa bank loan" the IRS says on its Web site at www.irs.gov. That's because people who pay late (the IRS calls this "failure topay") get hit with a penalty of 0.5 percent a month on the balance dueas well as interest, currently about 7 percent, said David J.Silverman, a tax specialist in New York who is co-author of Taxes forDummies (Hungry Minds, 2002). Those who want to pay under a formal installment agreement must fileIRS Form 9465 and get IRS approval. They pay a fee of $43, but face areduced penalty of 0.25 percent a month plus the interest, Silvermansaid. Some 2.2 million American taxpayers currently have suchagreements, he added. "Generally, if you ask to pay in installments and promise to clear thebill over 36 months or less, the IRS will accept," Silverman said. "Butyou need to pay it religiously."
Those even more hard-pressed can try to clear delinquent taxes with an"offer in compromise," through which the IRS accepts less than fullpayment. "These things take time to negotiate," Silverman said. "The IRS demandsa lot of financial records, and they don't accept all the offers." Offers in compromise, he added, "are usually for people who are on inyears, whose income prospects are rather bleak, or are in poor health."Don't think that asking for a four-month filing extension on IRS Form4868 will buy you time to pay. Unless you make an estimated payment byApril 15 that covers the taxes due, you'll owe those taxes when youfile -- plus interest and penalties. Associated Press iSyndicate, Inc.
