The 6 Most Common Tax Time What-Ifs, Answered Apri
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Posted On: 04/12/2013 8:45:22 AM
The 6 Most Common Tax Time What-Ifs, Answered April 15 is just around the corner — Monday, to be exact. For many people, it can be a time fraught with anxiety. Here’s how to handle six of the what-ifs most likely to keep you up at night. What if I need more time? File an extension. It’s IRS form 4868, and you can do it online. That gives you until Oct. 15 to file your federal income taxes. If you don’t, a failure-to-file penalty kicks in, which is 5% per month of any taxes you owe. But (yes, there is a “but”
, it’s only an extension of time to send in your paperwork, says Mark Steber, chief tax officer at Jackson Hewitt Tax Service. If you’re getting a refund, you don’t need to worry. But if you owe or even if you think you might owe, you’ll have to do some number-crunching now, because 90% of your estimated tax liability has to be paid by April 15. Just taking a guess isn’t really a good idea, Steber says. “You can guess, and many people do, but you have to guess in the IRS’s favor. You have to overestimate, not underestimate.” If the IRS doesn’t get paid what you owe them by the 15th, a late-payment penalty is applied. This is 1/2% per month on your outstanding tax bill. If you’re self-employed or in another situation where you pay estimated quarterly taxes, you could also get dinged with an additional 1/2% per month penalty fee for underpaying those. (MORE: The Hidden Cost of Tax Refunds) What if I owe more than I can pay? The IRS has a few options for people who are surprised by a big-ticket tax bill. You have to be pro-active, though. Reaching out to the IRS, even if it’s to say, “Hey, I can’t pay you right now,” is much better than waiting for them to initiate contact. One option is a short term extension. You get up to 120 days, and you’ll have to pay the late payment penalty plus interest. The IRS ties
, it’s only an extension of time to send in your paperwork, says Mark Steber, chief tax officer at Jackson Hewitt Tax Service. If you’re getting a refund, you don’t need to worry. But if you owe or even if you think you might owe, you’ll have to do some number-crunching now, because 90% of your estimated tax liability has to be paid by April 15. Just taking a guess isn’t really a good idea, Steber says. “You can guess, and many people do, but you have to guess in the IRS’s favor. You have to overestimate, not underestimate.” If the IRS doesn’t get paid what you owe them by the 15th, a late-payment penalty is applied. This is 1/2% per month on your outstanding tax bill. If you’re self-employed or in another situation where you pay estimated quarterly taxes, you could also get dinged with an additional 1/2% per month penalty fee for underpaying those. (MORE: The Hidden Cost of Tax Refunds) What if I owe more than I can pay? The IRS has a few options for people who are surprised by a big-ticket tax bill. You have to be pro-active, though. Reaching out to the IRS, even if it’s to say, “Hey, I can’t pay you right now,” is much better than waiting for them to initiate contact. One option is a short term extension. You get up to 120 days, and you’ll have to pay the late payment penalty plus interest. The IRS ties 
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