Due dates for Tax Payments
Last week, we discussed the due dates for the various types of tax returns, and we told you that we filed extensions for every single client. However, the extension extends the time to file, not the time to pay. If you owe taxes, then they are due on April 15.
First, let’s define who pays taxes (and more importantly, who does not).
Partnerships and S-Corporations do not pay taxes. Their income “passes through” to their owners’ returns, and the owners pay them on THEIR personal income tax returns.
Q: But Derek, I don’t have all my stuff in by April 15. How do I know how much to pay?
A: You don’t. That’s a big problem. And there’s no easy solution to that problem. You can either overpay and give the IRS an interest-free loan or you can underpay, and the IRS will charge you interest.
(I know that’s not the answer you want to hear, but that’s the only real answer. Any other answer is, quite frankly, bullshit.)
Q: Well, what are the penalties for being underpaid?
A: They’re not as bad as you might think. For every month that you’re underpaid, the IRS will assess a small penalty and interest, which equals about 1% per month. So think about it this way – if you’re underpaid by $10,000, the IRS will charge you… $100 per month. That’s all.
Q: But if I don’t pay on time, won’t the IRS come after me? I’ve heard horror stories about what the IRS does to people!
A: The horror stories that you hear are about people who committed tax fraud or didn’t file returns. But if you’re honest and pay them off once a year, they’ll pretty much leave you alone. (Other than the aforementioned interest, that is).
Q: Well, once they charge me penalties and interest, what do I do? Will you fight them for me? Do I hire a lawyer? Do I have to go to court?
A: You always have the option of defending yourself against the IRS. You can do it yourself, or you can have a professional do it for you. And depending on the situation, that may be a good idea.
Another option is this: just pay them. Pay them what you owe them, and they will go away. They don’t want to destroy you or throw you in jail. They just want their money. If you pay them, they will leave you alone.
It’s kinda like the voice in Field of Dreams*: If you pay them, they will leave.
Q: Well, if I don’t have the money to pay my taxes, should I still file?
A: Yes, yes, yes! A thousand times, “YES!!!” The penalty for not filing a tax return is much harsher (10x harsher, in fact) than the penalty for not paying, and the IRS has very little forgiveness for people who do not file their taxes. If you don’t pay your taxes, the IRS will charge you a small penalty, and frown at you. If you don’t FILE your taxes, they charge you a HUGE penalty and will crush you.
Remember – the vast majority of IRS horror stories are from people who are cheating on their taxes, not filing returns, or just flat refuse to pay after being given ample notice.
If you’re honest, file your taxes by October 15, and pay them in full at least once per year, then the absolute worst thing that will happen is that you’ll pay a small penalty and interest, which amounts to ~1% per month for any balance owed after April 15.
So if you pay them on October 15 when your return gets filed, you’ll pay ~6% more than you would have paid them on April 15. So instead of owing $10,000, you’ll owe $10,600. That’s as bad as it’s going to get.
Here’s how I see it on my OWN personal tax return – I don’t try to get it perfect on April 15. I try to get close. And if I have to pay a small penalty, I don’t care. I just pay it and move on. If it starts to get out of hand, then I’ll know I have to do better proactive tax planning.
If you need to make a payment or if you want to be more proactive about your April 15 payment, call us.
This post is just about taxes due on April 15. We’ll talk about quarterly payments in our next newsletter.
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Call Derek: (432) 687-0243
Email Derek: hello@basinwealth.com
