I filed an extension, I owe the IRS, what should I do?
I filed an extension and I owe the IRS what can I do?
The first thing that you need to understand is that filing an extension with the IRS allows you to have a 6 month extension to file the
tax return itself and not an extension to pay the taxes that you owe. This is a misunderstanding that many taxpayers have. This means, that if you feel or know that you are going to owe money on your taxes, it is important to send in a payment with your extension by April 15th. Then when your tax return is put together, that payment is applied leaving you either a balance owing or a refund.
So … you had all of your ducks in a row and you got your tax return filed on time and you owe money. Holy cow!! You had no idea it would be that much and who has that much sitting around waiting for just such an occasion? What do you do?
5 years ago on April 19th I got a call in the middle of the night. It was a client who was hiding out in an out of town motel. He had left his wife and kids at home and was in hiding because he did not have enough money to pay his entire balance due on his tax return. He wanted his wife to tell the IRS agent who was going to come to the door to “get” him that he was not there and had moved out and left her alone, therefore granting the wife immunity from being “gotten” herself by the IRS.
I reassured my client that truly he could go home and sleep in his own bed and that paying the money to the IRS was better than paying for
a motel room, but …. I assured him that the IRS does not send out agents to “get” people when they are 3 days late paying their tax return.
They call it: Blessed relief, this is a scenario of what not to do if you owe money. Instead, there are other options. The first and most important piece of advice is do not avoid the IRS and attempt to hide away or ignore it (trust me, it just doesn’t go away). Understand that
the IRS will work with you as long as you work with the IRS. What that means is that you need to keep in communication with the IRS while attempting to get all of this handled.
Option number one is a payment plan. The IRS most often will accept a payment plan from you when you apply for payments due to the inability to pay in full. You go to www.irs.gov website and get form number 9465 and fill it out. You are then giving the IRS the permission to
take a payment amount directly out of your bank account each month until the balance is paid in full. Now, keep in mind while filling out this form to put in an amount that you know you can pay each month. You do not want a payment plan to go into default. So put in what
you are sure you can pay and if it turns out that you can pay more, you can always send in a separate check at any time to help pay off your balance. AGAIN, keep in mind that the IRS does assess interest to unpaid balances, so don’t put in $10 on a $10,000 tax balance. First thing, they probably wouldn’t take it, but also, you will never get past paying the interest, just like a credit card, and you will pay for a long time to come.
There are other and more options but this should get you started.