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Tax Extension

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What is the Penalty for Not Paying Taxes?

Individuals that don’t pay their taxes in full by the deadline of April 15 each year are subject to a monetary penalty. The IRS can charge up to 6 percent interest on the unpaid balance and may choose to add a late payment penalty of 0.5 to 25 percent. Individuals that don’t pay their taxes are digging themselves a financial hole that can be almost impossible to escape.

Notices about the unpaid balance will begin to arrive and the letters will take on a more severe tone the longer a taxpayer ignores them. The IRS may place a tax lien against any property and financial assets that the person owns. The IRS will then be entitled to some or all of the money if an asset is sold.

Even if the actions aren’t reported on the taxpayer’s credit report, liens are part of public records. It can affect the person’s ability to maintain security clearance, obtain employment, a credit card or loan. Filing bankruptcy is no guarantee that the lien or tax bill will be dismissed.

The account may be sent to a collection agency for recovery. For those that owe tens of thousands of dollars or more, an individual could receive a visit from a revenue officer. During this time, the IRS may begin seizing assets.

The law says the IRS can take the taxpayer’s vehicle to sell at auction, 401(k) accounts, IRAs and homes. The State Department may get involved and can refuse to renew or issue a passport or revoke an existing passport.

However, what many don’t know is that the IRS generally won’t pursue individuals for unpaid taxes after 10 years, but they might, due to the 10 Year Statute of Limitations. The IRS doesn’t consider it in their best interests or cost effective to continue trying to collect and will wipe it clean from their books. It’s a complicated process that can be temporarily suspended under circumstances and the only one qualified to advise an individual on this is a tax professional.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

 

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Tax Extension

Reasons to File a Tax Extension

Amidst the hustle and bustle of the holiday season, many forward-looking individuals are already thinking about their tax return. Even though federal tax returns are due on April 15, there are a variety of legitimate reasons why individuals may want to file for an extension on their taxes. For those that file an extension, be aware that the deadline for paying their taxes is Oct. 15.

Incomplete Documentation

The IRS requires documentation of all earnings and individuals may not have it. They may have lost their W2 from an employer and be waiting for a copy or the documentation. Though it doesn’t happen often, forms may be lost in the mail. It’s far better to file for an extension and wait for the W2 or other forms. It’s not uncommon for documents such as Form 1099 or Schedule K-1 to be late.

Life Events

Natural disasters, a death in the family, or severe illness are also reasons for filing an extension. Filing taxes is something that requires an individual’s full attention and any of those situations are distractions that aren’t conducive to filing tax returns.

Tax Savings

In some instances, an extension can be a strategic money-saving decision for converting an IRA. Taxpayers can perform a Roth IRA conversion, and while they’ll still have to pay taxes on it, the advantage is that individuals can take tax-free deductions from the IRA in the future. Filing an extension makes good business sense.

Procrastinators

A number of individuals simply run out of time to file due to procrastination. The IRS won’t ask individuals to supply a reason for late filing, but for those that insist on waiting until the last moment, an extension does give them some breathing room.

Fees and Penalties

Even if a taxpayer files an extension on their taxes and doesn’t file by the extension deadline, they’ll still be subject to fees and penalties. The IRS will charge 1½ percent for each month the taxes aren’t paid after the filing deadline has passed. For those that don’t file a return at all by the extension date, the penalty increases to 5 percent per month and can reach a maximum of 25 percent.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

 

Contact Us Today

Read more