What, no money to pay your taxes by April 15? Happens to lots of indies.
The confident indie knows and understands the options and then makes the best decision given the options. So let me tell you what not to do and what you can do.
The IRS imposes penalties when you don't do what you are required to do. Among those penalties are late filing penalty and a late payment penalty. You do not want to incur both if you don't have to.
Avoid the late payment penalty by filing on time. Even if you don't have the money to pay your tax or to pay all of your tax. Pay as much as you can.
After the IRS receives your tax return you will receive a notice for balance due. If you have the money by then, pay the balance due. If not you may set up installment payments with the IRS.
Set up an installment plan that you know you can meet. Because if you miss a payment -- big trouble.
You will owe interest and late payment penalties on the money you owe. The IRS will continue to charge interest and penalties until all payments are made. But you will have avoided the much harsher late filing penalty.
Beg? Borrow?
I won't go into the calculations of what additional money you will owe. It depends on how much you owe and for how long you've owed it. But the big point is this - you're better off owing the government money than owing it to a credit card company, because the government's interest and penalty rate will almost certainly be lower - unless you have a great deal with a low-interest credit card. Deciding whether you should beg or borrow the money to pay the government rather than make some other arrangement is something you should discuss with your tax pro.
Death or destruction in your life?
The IRS will waive penalties for failure to file tax returns and for failure to pay tax if the failure is due to reasonable cause and not willful neglect. Death, illness, divorce, fire, theft, foreclosure are reasonable causes. Talk to your tax pro if any of these kinds of events prevented your paying or filing on time.
Penalties and Interest. To list just a few ...
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Underpayment penalty: 9% per year.
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Late payment penalty: ½ of 1% per month.
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Interest on balance due: Rate changes every three months
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Failure-to-file penalty: 5% per month, of the tax not paid by the due date, for a maximum of 25% of the unpaid tax.
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Failure-to-pay penalty: ½ of 1% per month of unpaid tax
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Penalty for a frivolous return: $500
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Accuracy-related penalty: 20% of the underpayment.
Tax Return Extensions.
Ignore the old husbands' tale that filing an extension sets you up for an audit. It just isn't so. If it gives you more time to collect your material, review your return, or make sure everything is as it should be, all the more reason to give yourself more time.
