LEGAL MATTERS: How To Stay Out of Tax Trouble
Wednesday, March 20, 2013
Unless your lawyer or accountant tells you otherwise, you should file your returns on time and pay what you owe.
File! (Even if you are just asking for an extension)
April 15th is the deadline for filing your returns and the deadline for paying your taxes. But the government will allow just about anyone to delay filing their personal income tax returns until mid-October provided they ask for an extension by midnight on April 15th. If you get an extension, remember only the deadline for filing your return, showing what you owe and why, is extended; the deadline for paying your taxes is still April 15th. (The tax collector has a heart, but it is only so big.) If you do not know how much you owe by the 15th, make an educated guess and send in as much as you can.
File! (Even if you don’t have the money to pay what you owe)
Interest will start accruing on any taxes you do not pay by April 15th. But interest and penalties will accrue about 10 times faster if you do not file your return or request an extension by the 15th. So just filing a return or requesting an extension can reduce the interest and penalties you will eventually owe from crushing to manageable.
File! (Even if you do not have all the information you think you need)
You generally have 3 years to go back and amend your tax returns and still claim a refund. If you are amending your returns to increase what you owe, you will get hit with interest but it will be much less than the interest and penalties you will get hit with if you simply do not file.
Options if you cannot pay
Dealing with tax authorities does not get really nasty until you ignore them or their deadlines. That is when they can do things like seize your bank accounts, garnish your wages. If you owe Rhode Island state taxes, they can suspend your driver’s license and the professional licenses you may need to work (i.e. your nursing license, engineering license, fishing license, etc.). To stop it from getting to that point, figure out what you owe, file!, and consider a payment plan, an offer in compromise, or bankruptcy.
A payment plan is just what it sounds like – you pay your debt in installments negotiated with the government. An offer in compromise allows you to pay a lump sum, less than the total you owe, to settle your debt in full. Compromises are tough to get, but if you have someone willing to loan you money or you have retirement savings you can cash in, they can save you a lot of money.
With bankruptcy, you have two options. Under certain circumstances filing bankruptcy can wipe out personal income tax debts that are at least 3 years old. But the court will look at when you filed your returns, and whether you filed on time, when it considers whether you qualify to have the debt wiped out. (Yet another reason to file!) If the tax debts cannot be wiped out, you can use a bankruptcy to try to get lower installments payments than the government might otherwise give you.
Help from the government
The IRS has Taxpayer Assistance Centers you can contact or just walk-in to for help with federal tax issues. If you need help with state taxes in Massachusetts, you can contact its Office of the Taxpayer Advocate. For Rhode Island state tax issues, the RI Division of Taxation does not have as formal an assistance program but it does have a Taxpayer Assistance and Research unit it tells you to contact at (401) 574-8829, option #3.
Your taxes are paying for these resources so you might as well use them.
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