If you enjoy the adrenaline rush of the eleventh-hour dash but have cut it too close to get your 2011 tax return completed by April 17, relax. File an extension application and your paperwork is not due until Oct. 15, 2012.
There are a couple of things you should keep in mind if you intend to do this:
- You must include an estimate of your 2011 tax bill – based on the information you have on hand – with your Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return). Approval of the extension will be granted if this estimate looks reasonable.
- The IRS charges interest at an annual rate of 3 percent on any outstanding balance until you file your return and pay what you owe. If your estimate was too low, you will be slapped with an additional 0.5 percent a month failure to pay penalty.
The IRS expects that you have paid taxes throughout the year and that your April filing will show either that you owe a small amount more or are entitled to a refund. If something unusual and unanticipated has happened and you are facing a large tax bill, get help immediately from a tax professional. What can you do if you find yourself facing a very large tax bill when your cash flow is limited? First of all, take some action. Setting up a payment plan and coming to some agreement with the IRS is crucial. They want their money.
- Yes, you can pay your taxes with a credit card, but think about it carefully. Do not end up paying 12 percent or more interest on the charge. It makes little sense to transfer your problem to an expensive source of funds.
- If you have a credit card with a very low annual percentage rate, this might be a good option for you.
- Additional fees on credit card charges don’t end with hefty interest payments. You will also pay the convenience fee – the fee that merchants usually pay credit card companies when you use your card to purchase goods or services. The IRS has no intention of paying a percentage to the finance companies so you can pay with plastic, and you get the privilege of forking over the fee – another 2 percent to 2.5 percent (depending upon the card) to the finance company involved.
Installment Plan with IRS
- The most common plan involves a $52 set-up fee and your authorization for automatic payments to go to the IRS from your checking account. The current interest rates is 0.5 percent per month (it is subject to change quarterly).
The commentary above is general in nature. In all matters involving your taxes, consult with a tax professional before taking any action.