Also, interest generally accrues on the amount owed, which is separate from the penalty. That interest rate, which can change quarterly, is currently 6 percent.
Of course, the idea isn’t to file your return and ignore the tax debt. While the IRS will send you a bill for the balance, you also can explore setting up a payment plan.
“You designate how much you’ll pay per month, and as long as it’s reasonable, my experience is that in most cases the IRS will accept it,” Warnkin said.
More from Smart Tax Planning:
Why secret cash payments to your nanny could backfire
Getting zero back from the IRS might be a good thing
Five ways to jump-start your tax return
Depending on the length and terms of your plan, along with your income, there could be a fee to set it up. And, you’d still be on the hook for the late-payment penalty, although at a lower rate: 0.25 percent per month that the installment plan is in effect, instead of 0.5 percent, according to the IRS.
Warnkin said that if you face a tax bill this time around, it’s an indication that the same situation could crop up a year from now unless you take steps to prevent it.
“That’s where it gets really tough, because the best way is to increase your withholding from your paycheck, but that reduces take-home pay, which makes it harder to pay back what you owe,” Warnkin said. “But, you really should do something so you don’t get into an endless cycle.”
Be the first to comment