The extended deadline for filing 2016 individual federal income tax returns is October 16. If you extended your return and know you owe tax but can’t pay the bill, you may be wondering what to do next.
File by October 16
First and foremost, file your return by October 16. Filing by the extended deadline will allow you to avoid the 5%-per-month failure-to-file penalty.
The only cost for failing to pay what you owe is an interest charge. Because an extension of time to file isn’t an extension of time to pay, generally the interest will begin to accrue after the April 18 filing deadline even if you filed for an extension. If you still can’t pay when you file by the extended October 16 due date, interest will continue to accrue until you pay the tax.
Consider your payment options
So when must you pay the balance due? As soon as possible, if you want to halt the IRS interest charges. Here are a few options:
Pay with a credit card. You can pay your federal tax bill with American Express, Discover, MasterCard or Visa. But before pursuing this option, ask about the one-time fee your credit card company will charge (which might be deductible) and the interest rate.
Take out a loan. If you can borrow at a reasonable rate, this may be a good option.
Arrange an IRS installment agreement. You can request permission from the IRS to pay off your bill in installments. Approval of your installment payment request is automatic if you:
- Owe $10,000 or less (not counting interest or penalties),
- Propose a repayment period of 36 months or less,
- Haven’t entered into an earlier installment agreement within the preceding five years, and
- Have filed returns and paid taxes for the preceding five tax years.
As long as you have an unpaid balance, you’ll be charged interest. But this may be at a much lower rate than what you’d pay on a credit card or could arrange with a commercial lender.
Be aware that, when you enter into an installment agreement, you must pledge to stay current on your future taxes.
Act soon
Filing a 2016 federal income tax return is important even if you can’t pay the tax due right now. If you need assistance or would like more information, please contact us.