Filing for an extension could increase your tax debt

On Behalf of | Jul 3, 2020 | Back Taxes or Tax Debt

There are plenty of reasons why some Connecticut residents will be unable to have their taxes completed and filed by this year’s deadline, which is fast approaching. The Internal Revenue Service allows those who require extra time to prepare and file their tax returns the ability to request extensions, which would give them until mid-October to have everything squared away. While an extension can be a helpful tool, for those who owe money, it can actually end up increasing their tax debt.

Some individuals mistakenly believe that an extension not only gives them more time to file their tax returns but also more time to pay. The truth of the matter is, interest and penalties will start accruing the day after the year’s established tax deadline — and for the year 2020, the deadline is July 15. There is one thing taxpayers can do to escape or minimize these penalties, and that is pay taxes owed by the tax deadline, even if one’s tax return is not yet ready to be filed. 

How can one know what to pay without a completed tax return? Some people will be able to guess how much they owe based on their previous year’s tax return and factoring in any notable changes to their income. If anything, it is better to overpay and receive a refund than underpay and have interest and penalties stack up. 

What if one cannot pay by the tax deadline? It is suggested that those who owe pay as much as possible by the deadline. Those who lack funds to meet all or a portion of their tax obligation may be able to work out an arrangement with the IRS. 

Avoiding tax debt is ideal, but it is not always possible — for various reasons. Connecticut residents who need, or would like, help working out payment arrangements with the IRS can turn to legal counsel for assistance. With the right help in one’s corner, the situation can be quickly resolved.