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filing your taxes

The Importance of Filing Your Taxes, Even If You Can’t Pay

July 31, 2015

As far as IRS penalties are concerned, there is a difference between filing your tax return and paying your taxes. If you do not file your return, you pay the failure-to-file penalty. If you do not pay your tax bill, you pay the failure-to-pay penalty. If you do not file and pay, you pay the greater of the two penalties. You can and should file your tax return even if you cannot pay your taxes to avoid the failure-to-pay penalty.

Paying Less in Penalties

The IRS charges penalties individually for non-filing of a tax return and non-payment of taxes. As such, you can avoid the failure-to-file penalty even if you do not pay your taxes.

The failure-to-file penalty is 5 percent of the unpaid taxes. The failure-to-pay penalty is 0.5 percent of the unpaid taxes. Both these penalties are charged each month until the taxpayer regains compliance.

If you can’t pay, getting an extension won’t help. An extension is an extension to file, not an extension to pay taxes. Even if you do get an extension, you will only avoid the failure-to-file penalty, not the failure-to-pay penalty.

The best choice for you, if you cannot pay, is to file your return by the deadline and pay as much as you can. Even if you can only afford to pay 30% of your total tax bill, you will be charged a penalty on the balance.

Easier Resolution

When resolving back taxes, the IRS will ask you to file all past tax returns that may be missing. Even if you pay your entire tax debt in one payment, you will need to file all past returns to obtain a resolution.

With all your returns filed, the process of resolution becomes simpler. No matter what your circumstances, a swift resolution means you save money in monthly penalties.

Taxpayers with low income can use the IRS free tax preparation service during filing season. You can use the Volunteer Income Tax Assistance (VITA) program for getting free return preparation assistance if you make $53,000 or less annually.

Taxpayers who are 60 years old or older can make use of the Tax Counseling for the Elderly (TCE) program. The IRS efile service also offers free tax preparation software and free electronic return filing. Using free assistance, you can file your tax return on time and pay much less in penalties.