Paying Your Taxes In Full – California and Federal Tax Law

Whether paying with a timely filed income tax return, or filing late and paying late after receiving a tax bill from the IRS, we in California and all other taxpayers ought to pay the taxes we owe in full. This type of tax problem is often easily resolved. If you don’t pay your taxes and you don’t make any effort to pay them, the IRS can forcefully ask you to take action to pay the taxes, such as getting a loan or selling or mortgaging any assets you own. Mortgaging your home in Southern California, including areas like Los Angeles County, Ventura County, Orange County or Santa Barbara County, can be quite expensive but probably cheaper than IRS rates.

If you still make no effort to pay your tax bill after being asked by the IRS, or make some type of payment arrangement, the IRS will probably take more serious enforced collection action, such as levying your wages or other income, your bank accounts, or taking other assets by seizing them. The IRS could also file a Notice of Federal Tax Lien that will likely harm your credit standing.

Ways to Pay Taxes:

Payments can be made by check, money order, credit card, electronic funds transfer, cashier’s check, or cash.

If you choose to make an easy, safe and secure electronic payment, you can authorize an electronic funds withdrawal, use a credit card, or enroll in the U.S. Treasury’s Electronic Federal Tax Payment System (EFTPS).

Electronic payment options give you an alternative to paying taxes by check or money order. Payments can be made any time 24/7. Best of all, the electronic funds withdrawal and EFTPS options are free.

Payments by credit card can be made through one of two official vendors:

Official Payments Corporation at 1-800-2PAYTAX (1-800-272-9829) or www.officialpayments.com, or
Link2Gov at 1-888-PAY1040 (1-888-729-1040) or www.pay1040.com.

Electronic funds transfers directly from a bank account can be made by enrolling in the Electronic Federal Tax Payment System (EFTPS) in one of several ways:

www.eftps.gov or

call 1-800-555-4477 or
Publication 966, The Secure Way to Pay Your Federal Taxes

Payments by check, money order, or cashier’s check, should:

Be made payable to United States Treasury (or U.S. Treasury)

Include the social security number or employer identification number, tax period, and related tax form number

Be mailed to the address listed on the notice or instructions

When do Penalties and Interest Apply?

Penalties and interest apply to years in which money is owed. The interest charged on late payments changes quarterly and has ranged from about 9 percent to about 4 percent.

The late filing penalty is generally 5 percent per month, or part of a month, up to 25 percent of the amount of the tax shown on your income tax return. The late payment penalty is 1/2 of 1 percent per month, up to 25 percent of the unpaid amount due.

Depending on the situation, informing the IRS why your income tax returns have not been filed could result in waiving the penalties.

Other Ways to Resolve Tax Debts:

If you have a balance due on your income tax return then you should consider:

Cash advances on credit cards

Bank loans

Using equity in real estate or other assets

Liquidating savings accounts, savings bonds, stocks, etc.

Borrowing against 401(k), Life Insurance, etc.

You are encouraged to pay as much as possible if you are unable to pay all taxes due on the bill. You reduce the amount of penalties and interest by paying as much as possible now.

The IRS is willing to offer extensions of time to pay in order to assist in tax debt repayment. Based on the circumstances, you could qualify for an extension of time to pay. You can request an extension from 30 – 120 days depending on the specific situation. Penalties and interest incurred will still be accruing during the extension period.

If you cannot make payment of your total amount of tax, interest and penalties, the IRS may request a Collection Information Statement (CIS) to analyze individual or business monthly income and expenses and to help with determining a payment plan.

More ways you can use to resolve your debt include:

Monthly payments through an Installment Agreement,

Temporary delay or significant hardship consideration, or

Offer in Compromise

Other Considerations:

Taxes paid in a timely manner reduces the amount of penalties and interest you may owe

While making payments on a tax debt through an installment agreement, penalties and interest continue on the unpaid portion of the tax

The IRS charges interest on interest which is calculated on the unpaid balance, penalties, and interest that has been charged to the tax account.

Mitchell A. Port, a tax attorney in Los Angeles, California, can be reached at 310.559.5259 if you need tax help.