What do you do when you owe the IRS on April 15?

The vast majority of Americans get a tax refund from the IRS each spring. But what if you’re not one of them? What if you owe money to the IRS?
Here are five tips for individuals who still need to pay their taxes.

  1. If you get a bill for late taxes, you are expected to promptly pay the tax owed including any additional penalties and interest. You can pay the balance owed by electronic funds transfer, check, money order, cashier’s check, or cash. If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.
    You can also pay the bill with your credit card. In either case, the interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the Internal Revenue Code.

  2. If you cannot pay the liability in full you may request an installment agreement. This is an agreement between you and the IRS for the collection of the amount due and is payable in monthly installment payments. To be eligible for an installment agreement, you must first file all required returns and be current with estimated tax payments.

  3. You can also use an installment agreement if you owe $25,000 or less in combined tax, penalties, and interest. The IRS will inform you usually within 30 days whether your request is approved or denied or if additional information is needed. If the amount you owe is $25,000 or less, provide the monthly amount you wish to pay with your request. At a minimum, the monthly amount you will be allowed to pay without completing a Collection Information Statement is an amount that will fully pay the total balance owed within 60 months.

  4. You may still qualify for an installment agreement if you owe more than $25,000, but a Collection Information Statement must be completed before an installment agreement can be considered. If your balance is over $25,000, consider your financial situation and propose the highest amount possible, as that is how the IRS will arrive at your payment amount (based on your financial information).

  5. If an installment agreement is approved, a one-time user fee will be charged. The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with incomes at or below certain levels, a reduced fee of $43 will be charged. This is automatically figured and is based on your income.

  6. If you owe the IRS money, give our office a call. We can help you set up installment agreements and other payment options.

Passthrough Penalties

With the due date for filing S-Corp returns only a month away (March 15), it seems like a good time to remind ourselves why we go through the trouble of filing these returns on time in the first place.

Penalties for S-Corps, Partnerships, and Fiduciaries failing to file returns have been steadily rising, but starting in tax year 2010 penalties for S-Corp, Partnership, and Fiduciary filing late returns increased to $195.

The IRS states that for returns on which no tax is due, the penalty is $195 for each month or part of a month (up to 12 months) the return is late multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation’s tax year for which the return is due. The penalty may also be charged if the return does not show all the information required.

For example, if a S-Corporation fails to file its 2011 return (including a Schedule K-1 to each shareholder) on time the penalty could be as much as $2,340 per shareholder per year ($195 per shareholder for the maximum of 12 months).

These failure-to-file penalties do not include tax that is due or penalties for tax that is due, but not paid on time. Add in the fact that the penalty isn’t tax deductible on your tax returns the following year and you’ve got yourself a double whammy.

If the partnership or S-corporation can show that the failure to file on time was due to “reasonable cause”, the IRS might provide relief. Be advised however, that if the partnership or S-corporation has established a pattern of failing to file in the past, it’s unlikely that the IRS will be sympathetic.

Why take a chance? If you need assistance filing your S-Corp, Partnership, or Fiduciary return, call us today!

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