Millions of taxpayers are struggling to make the necessary income tax
payment owed to the IRS on April 15, adding to an already stressful
time of year. But according to the leading tax extension provider, FileLater, there’s a really smart option available to
taxpayers that often flies under the radar: borrowing from the IRS
through the filing of an income tax extension.
The IRS expects close to
thirty million Americans will owe the government money by April 15th (as
opposed to getting a refund). Many taxpayers will put their tax balance
on a high interest credit card – a costly decision that takes nearly
$300 out of the pocket of the average taxpayer who owes money to the
IRS.
The most recent volume of Publication 1304 states that 28.6 million
Americans will owe an average of $4,500 to the IRS. If a taxpayer puts
their tax liability on a credit card for 6 months (the length of a tax
extension), they'd pay approximately $100 in "convenience fees" and
nearly $400 in credit card interest. That’s a total of $500 over and
above the $4,500 they owe Uncle Sam.
FileLater – an authorized IRS e-File provider - explains that the
Federal government, believe it or not, can actually save you money.
Using the same example, if a taxpayer who owes that same $4,500 simply
filed a tax extension and avoided putting their liability on a credit
card, they'd only pay $135 in late payment penalty and about $90 in
interest. That’s a total of $225, a savings of $275 versus credit cards.
By taking advantage of this lesser- known option, US taxpayers together
could save millions by avoiding high interest credit card balances to an
IRS loan at a record low 4% interest rate.
“The practicality of tax extensions are often drowned by unnecessary
fears of financial penalties,” says FileLater’s Wes Masters. “The
reality is that these financial penalties are quite reasonable, and
considerably less costly than typical credit card interest. Tax filers
deserve to know that tax extensions are a completely acceptable by the
IRS, and highly preferred option to carrying balances on credit cards.”
While IRS income tax extensions are quickly growing in popularity (the
IRS expects more than 15 million to be filed this year), the financial
ramifications that come along with getting an extra 6 months to file can
be confusing.
Three potential finance penalties associated with not paying taxes on
time can be broken down into late filing penalties, late payment
penalties, and IRS interest. Filing an income tax extension will
eliminate the late filing penalty, which is 5% of the tax balance due,
per month. The IRS may assess approximately $8.33 per month of combined
late payment penalty (0.5% of the balance due, per month) and interest
(4% annually) per $1,000 owed. As a simple comparison, that same $1,000
paid to the IRS via credit card will be assessed a convenience fee of
approximately 2.5% ($25) and typical credit card interest of 18%,
another $15 per month.
About FileLater
FileLater is a safe, easy and convenient online service for individuals and businesses to file tax extensions. An IRS tax extension gives individuals up to six more months to file a tax return, extending the deadline from April 15 to October 15. FileLater allows individuals and businesses to extend deadlines for federal taxes, and, as laws vary from state to state, provides instructions and relevant forms to extend state tax deadlines for all states. Tax extensions do not extend the time for individuals or business to make a tax payment, only an extension to file the necessary paperwork, however taxpayers can use FileLater to submit payment to the IRS directly from their bank account. The company was developed so people without tax expertise can extend their tax deadlines without involving a professional tax preparer, and to provide a better solution for people who already file their own tax extensions.
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