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Automatic extensions and payment plan eligibility

You have a right, as a taxpayer, to apply for an automatic six-month extension to file your taxes.

The availability of such an extension is important to remember this time of year, if you are having trouble getting your taxes together. That is why, in our April 2 post a year ago, we offered a similar reminder.

In today’s post, we will address a specific aspect of an extension: the way in which it maintains your eligibility to apply for a payment plan if you can’t pay all of your tax liability right away.

A six-month extension doesn’t take away the obligation to pay any taxes that come due on April 15. But it can enable you to avoid penalties for late filing and late payment.

As USA Today pointed out last week, there is another way in which an extension may benefit you. When you obtain an extension, it can preserve your eligibility to work out a payment plan with the IRS for your tax liability.

As an individual, f you owe $50,000 or less, you are eligible to seek an agreement with the IRS to make payments online over a designated period. But in order to work out an installment agreement like this, you must be current on filing all required returns.

To be sure, filing for an automatic extension is not quite the same as filing your tax returns. But for purposes of preserving your eligibility for a payment plan, it is.

For businesses, the same reasoning applies to payroll taxes – except that the amount owed must be $25,000 or less.

Source: IRS.gov, “Payment Plans, Installment Agreements

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