US taxpayers could save millions of dollars by avoiding high interest credit card balances in exchange for an IRS loan at a record low 4% interest rate.
La Jolla, CA (PRWEB) April 15, 2010
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 in exchange for 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.
FileLater is a safe, easy and convenient online service for individuals and businesses to file a tax extension. An IRS tax extension gives individuals up to six more months to file a tax return, extending the tax 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.