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Options available to pay your taxes

Posted by Andrew Chan  January 11, 2010 10:00 AM

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I just found out that I owe over $7,000 on my 2008 taxes. What should I do?

Generally, if you have completed your federal or state tax return and have determined that you owe additional taxes, you should pay it in full before the due date for that tax year. For the 2008 tax year, the deadline for paying your individual income taxes was April 15, 2009. While extensions are usually available for filing your tax return, they are generally, not available for paying your tax liability.

On rare occasions the IRS may grant a 6-month extension to, both, pay your tax liability and file your tax return, However, you must apply for this before the regular tax filing due date which, for 2008, was April 15, 2009. In certain cases, if you are a U.S. citizen and you live outside of the U.S. or your are in the military serving outside of the U.S., you may qualify for an extension to pay your tax liability.

If you are unable to pay the amount owed by the due date of that payment, you should still file your tax return and pay as much as you can. The interest and penalties assessed for not filing your return or not paying you tax liability on time can be significant. The failure-to-file penalty can range from 15 percent to 75 percent and the failure-to-pay penalty can range from 5 percent to 25 percent of the unpaid balance.

If you are unable to completely pay off the balance owed, you should contact the IRS (or you state tax authority if you cannot pay your state tax liability) as soon as possible to work out additional payment options or more flexible payment terms. The IRS and state taxing authorities may allow you to setup an installment agreement which would allow you to pay off your taxes over time rather than as a single lump sum. When you contact the IRS or state tax authority, be sure to explain any financial hardships, such as job loss or medical illnesses that may have contributed to your inability to pay. During the past year the IRS has announced additional assistance for taxpayers who experience financial hardships.
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D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit www.morganstanleyfa.com/ringer
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
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