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Forget to file? Do it now

Tax day came and went and you weren't a part of it.

Maybe it really slipped your mind. Possibly April 15 was so hectic you just never got around to finishing up that return. Or perhaps you knew you owed tax and just couldn't face paying the federal piper.

Whatever the reason for missing the deadline, there's only one thing to do now: File!

Pay up
If you owe, it's definitely better late than never when it comes to dealing with the Internal Revenue Service. Sure, you'll face penalty and interest charges, but you can slow the meter by sending in something.

Your best bet right now is to file Form 4868, Application for Automatic Extension of Time to File. This will give you until Aug. 15 to fill in the forms.

Remember, however, the extension is for paperwork only. There is no extra time granted to pay your taxes. If you don't send in what you expect to owe with your extension request, you'll be digging yourself deeper into IRS debt thanks to penalty and interest charges.

Not filing means penalties and interest
First, there's the penalty for not getting your forms in on time.

This is 5 percent of any tax you should have paid with the missing form. The penalty is assessed for each month, or part of a month, that any tax is due and will accumulate until it hits 25 percent. By missing the April 15 deadline, you've already bought yourself a charge here. But you have some control over when it stops by getting your return and taxes into the IRS ASAP.

Then there's the separate charge for not paying when you do file. The IRS can hit you with a late-payment penalty, usually 0.5 percent of any tax not paid. However, this penalty can go up to 1 percent a month if you delay so long that the agency sends you a final notice about your overdue tax bill. Again, this can amass until it hits the 25 percent mark.

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The late-payment penalty is automatic when a return is sent without payment. It could be waived by the IRS if you show reasonable cause -- determined by the IRS -- as to why you didn't meet the filing deadline. Rest assured, any excuse you use will be closely investigated.

If both the late-filing and late-payment penalties apply in any month, you actually get a break on the failure-to-file charges. The IRS will reduce that amount by what it's also charging you for not paying, so the maximum late-filing penalty could drop to 22.5 percent.

But even if you get the IRS "discount" on the late-filing and late-payment charges, you'll still face interest charges on your due tax bill. That's right. Uncle Sam, like any creditor, makes you pay extra for any balance you carry. And interest is even charged on penalty amounts.

Interest charges started running at 12:01 a.m. April 16 on unpaid taxes, even if you got an extension of time to file. Right now, the IRS meter is set at an annual rate of 5 percent (it's adjusted quarterly). So it's definitely to your advantage to get your taxes filed as soon as possible.

And even if you don't owe, not filing could cost you. There's no penalty for not sending in a return if you're due a refund. But if you wait too long to file, you may risk losing your tax cash. The deadline for claiming refunds is three years after the return's due date.

Taking your time paying -- with IRS approval
If the root of your non- or late-filing situation is lack of cash on hand, then it's time to explore other ways to pay. Rest assured, the IRS is ready to work with you to get your money sooner rather than later.

If you expect you can eventually meet your full tax obligation, the Uncle Sam accepts installment payments. You're automatically accepted in the installment program if you owe less than $10,000. You even get wide latitude in setting up terms that fit your financial situation.

Installment tax payment, however, isn't without additional cost. Once approved -- you'll get a letter from the IRS with specific guidelines and payment info -- you'll be charged a $43 service fee. And your outstanding tax balance will be subject to the agency's interest rate charge.

Plastic accepted
Some taxpayers find they can pay part or all of their tax bill by putting it on a credit card. The IRS has authorized Official Payments Corporation and Link2Gov to take charge payments of tax bills.

You can call either credit payment processor or go to their Web sites to pay. Both accept American Express, MasterCard, Visa and Discover charges.

Official Payments Corp.
Link2Gov Corp.

While this may get you off the hook with Uncle Sam, it will cost you in other ways. Each company charges a service fee of 2.49 percent of your charged amount. And if you don't pay off your credit card in full, you'll start racking up interest charges on your credit card account.

Let's make a deal
What if your tax bill is just too big? Then it may be time to negotiate.

Under the offer in compromise program, the IRS works with taxpayers who owe more than they can ever pay. The hope on the tax collector's part is that the agency will get some taxpayer money sooner than it would after years of costly collection efforts.

In compromise cases, the taxpayer proposes a tax amount to be paid. If the agency agrees, the tax bill is reduced to that amount. The key ground rule here is that the amount must reasonably reflect the taxpayer's ability to pay. You can't participate in the program if you're financially OK and are simply looking for a way to cut your legitimate tax bill.

Filing comes first
But before you can take advantage of any alternate payment plan, you've got to file -- and quickly.

The sooner the IRS receives your paperwork and payment, the sooner the additional penalty and interest charges will stop.

Plus, you could spare yourself some additional unwanted IRS contact in the future. Procrastination gives the IRS more audit time. The three-year statute of limitations on examining old returns doesn't begin until a return is filed. The longer you take to file, the more time you give the taxman access to your records.

And because federal law requires you to file a return, continued delay could open you up to a criminal non-filing investigation and penalty. In that case, the time you bought yourself by not filing in April could be offset by time in the federal slammer.

-- Updated: April 15, 2004


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See Also
IRS has just the form for procrastinators
Can't pay your taxes? Uncle Sam offers options
Pay Uncle Sam with plastic -- if you're desperate
Getting your tax return to the IRS

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