Always file your return. If not, you’ll be on the hook for the failure-to-file penalty, which can add up quickly.
But what if you can’t file by the April deadline? Of course, you should then get an extension (using Form 4868). This means you will have until October 16th to file your return. Although, this will not avoid the interest and penalties on any taxes you owe.
#3 – Installment Agreement
If you owe $50,000 or less to the IRS, then an installment plan is straightforward and allows you to make payments for up to 72 months.
As for the process, you can apply for an installment plan online or by filing Form 9465. But you must be current on your tax filings and all future refunds will be applied to the outstanding debt.
There is also a filing fee, which is $255 if you mail-in a form or $107 if you use direct deposits. But if you have low income, the fee is $43.
And what if you owe more than $50,000? In this situation, you will likely need to provide disclosures of your finances. In other words, the IRS wants to determine if you would suffer a hardship if you had to come up with all the money to pay off the tax debt.
Regardless of which option applies, it is still a good idea to pay as much as possible initially. This is because you are on the hook for interest and penalties with an installment agreement.
#4 – Credit Cards, Friends & Family and Your 401(k)