Movie stars and professional athletes may get many perks due to their line of work, but there’s one great equalizer each year, courtesy of Uncle Sam—tax day.
Case in point, Olympic skier Lindsey Vonn owes $1.7 million in delinquent federal taxes to the IRS, The Detroit News reported. The bill is from one year of income, in 2010, the year she won her gold medal, according to the report.
While a small business owner owing back taxes won’t exactly make national headlines, the penalties for trying to elude the IRS are often high and harsh.
Bob Scharin, senior tax analyst for Thompson Reuters, said for those who have completed their returns for this tax year and know they owe money, but can’t afford to pay just yet, filing is still the best option.
The penalty for not paying the taxes you owe is lower than the combined penalties for not paying and not filing, Scharin explained.
“The failure to pay penalty is one-half of 1% per month, with a maximum penalty of 25%” he said. “Don’t stick your head in the ground even if you realize you owe—still file the return.”
Failing to file and failing to pay is 5% of the amount you owe per month for up to 25 months, he said, so filing alone saves you that 4.5% interest rate, which will add up quickly.
Some procrastinate when it comes to filing their tax returns, while others simply choose not to file because they believe they will owe the IRS, he said. Those who avoid filing or filing in haste may actually be missing out on valuable refunds they could cash in on, he said.
“Certainly people who don’t have the money [may] think if they keep a low profile they won’t be found by the IRS or other bill collectors,” Scharin said. “But when you are caught, the interest will add up.”
Those who haven’t even filed yet can look into filing an auto extension that will give them till October 15 as well, he said; however this does not relieve the filer of the money they owe to the government.
Another payment option to consider is a credit line, Scharin said, comparing the interest rates on your credit cards with those you would face for not filing or paying.
A final option for those in a crunch, circumstances permitting, is filing a form 1127, or an “undue hardship extension,” Scharin said.
“This can give people an extension to pay their taxes, and they will still owe interest on the underpayment or late payment,” he said. “But they will not owe the failure-to-pay penalty.”
This extension can be for as long as 18 months, he said, but the person has to prove and explain what their hardship was that made them unable to pay their taxes.