I have a payment plan with the IRS for back taxes and can't pay what I owe for this year. What should I do?
The IRS doesn't like the fact that you owe back taxes (big surprise); but, they will set you up on an installment plan if you qualify. As long as you make the payments and file and pay your future tax returns on time, the problem of the back taxes is, in their words, resolved and you won't have to worry coming after you.
However, they will not allow you to add to that debt. If you do, bad things can happen.
The most important requirements to keep an IRS installment agreement in good standing are that, as long as the payment plan is in effect, you must file future returns on time and pay all taxes, penalties and interest due on time.
To comply with those requirements, the first thing to do is prepare your current year return so you will know how much you will owe as soon as you can after the new year begins. If you can't pay that amount by April 15, file an extension. Then save money until you have enough to pay when you do file.
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If you have an extension, you will avoid the penalty for filing late until October 15 but will still be charged the penalty for paying late and interest. That's right; the extension does not extend deadline for paying the tax. In other words, you will be charged a penalty on any payment you make after April 15. Tip: If you file between April 15 and October 15, you can minimize the the late payment penalty and interest by paying them when you finally file. If you don't do that, you will get a billing notice saying that you owe more, which you should pay immediately to avoid having your installment agreement go into default.
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