Monday, March 10, 2014
Tax Management at Bp Holdings: Dos and don’ts of Money Management for paying your tax bill
About three-quarters of individual taxpayers received refunds last year, according to Internal Revenue Service www.irs.gov/uac/Newsroom/Filing-Season-Statistics-May-10,-2013 statistics. However, many people find that they do owe taxes when April 15 comes around. If you fall into that group, the Connecticut Society of CPAs offers these recommendations on the best way to settle your bill.
Don’t rush to charge it
It’s always best to use available cash for your tax bill. It may seem convenient to use a credit card, but remember that you will be charged interest if you don’t pay off your balance immediately, which will just add another cost to covering your taxes. If you find yourself owing taxes every year, your CPA can help you adjust your withholding, if necessary.
Do pay what you can
If you don’t have the money to pay your bill, contact the IRS to let them know your situation and send in as much as you can by the deadline. As discussed below, the IRS will often work with taxpayers who are having financial troubles to help them reconcile their tax debt.
Don’t fail to file
If you do, it could be costly. The IRS will usually charge you a penalty of 5% of your unpaid taxes for every month you are late in filing a return, up to 25% of your total unpaid taxes. So, if you owe $1,000 in taxes, you could end up paying as much as $250 in fees if your return is late. If you file a return but can’t pay your taxes, you will usually be charged a much lower amount — ? of 1% of your unpaid taxes — for each month you’re late, up to 25 percent of your unpaid taxes, so it’s best to file even if you’ll come up short on paying your entire tax debt. (You will also be charged interest on the outstanding amount.) The penalties may be waived if you can demonstrate reasonable cause for the failure to file.
Do remember the Fresh Start program
The IRS Fresh Start program offers a number of options for taxpayers who are struggling to meet their tax obligations. It is possible, for example, to request an installment agreement in which you pay your tax bill in monthly direct debit payments over up to 6 years. If you believe you will be unable to pay your entire outstanding tax bill, another possibility is the IRS Offer-in-Compromise program, in which a taxpayer and the IRS agree to settle the tax bill for an amount that is less than what’s owed. The IRS generally will consider a settlement offer if it believes the taxpayer won’t be able to pay off the amount in a lump sum or in a payment plan. The taxpayer’s income and assets are among the issues the IRS examines in considering a settlement.
Do consider an extension if necessary
If you simply need more time to file your return, you can ask the IRS for an extension of your deadline. Remember, though, that you will still have to pay at least 90% of your tax bill by the original due date or face a penalty, so you will have to estimate what you owe and submit payment on time.
Turn to your CPA
If you’re not sure you’ll be able to file on time, or pay your taxes due, be sure to contact your local CPA. He or she can help you resolve any related issues and get your tax situation back on track. And remember to call on your CPA throughout the year to discuss all your financial questions or concerns. Find a Connecticut CPA online at www.ctcpas.org/FindACPA.