What Happens if You File Taxes Late: Taxes 911
Tax time brings about a sense of dread and relief in so many. It comes around every year, and it is the one thing we all have to do is pay taxes. If we do not, there are penalties and possibly jail time waiting for us. There are ways to request extensions on both filing and paying your taxes. If you do not file or request an extension by the deadline, the IRS will come knocking at your door. They will make sure they get their money, and it is important that you file your taxes timely. It is always beneficial to be informed; you should continue reading this article to find out what might happen if you file taxes late.
What Happens if You File Taxes Late
Historically, the deadline for filing your taxes has always been by midnight on April 15. There are many people that wait until the last minute and get their returns filed just in time. In the past two filing seasons, we have been in the middle of a pandemic, and the IRS has granted some leniency in the filing time.
For 2023, the federal tax deadline for individuals filing their taxes is April 18, 2023. They have granted an extension of a month.
For 2023, the federal tax deadline for individuals filing their taxes is April 18, 2023.
What Happens if I Miss the Deadline?
When you are wondering what happens if you file taxes late, it is important to know that a little late is better than really late. Suppose you forget what day it is and you miss the deadline by a day, you should file immediately. The penalties accrue each day, so each month you are late, the more you are penalized. There will be more about that later. If you file late and you are due a refund, there is no penalty for late filing. You will get your refund late, but at least you will not owe any money to the IRS. You are eligible to get your refund up to three years late. This is not a recommended tactic. If you are due a refund, it is silly to wait to file.
If you file late and you owe money to the IRS, it completely changes things. The amount of penalties you have to pay is directly related to the amount you owe and how late you are in the filing. You will pay a penalty of 5 percent of the amount you owe for each month it is late.
Failure to File Penalty
There are several penalties you can face when it comes to your taxes. The first one is what happens if you file taxes late, and these are called failure to file penalties. This penalty occurs when you do not file your taxes by the filing deadline.
Even if you do not think you can afford to pay your owed taxes, be sure to file on time. You can reduce penalties by paying some of your taxes. There is no reduction in penalties for filing late. There are options for payment once you know how much you owe. The IRS is more than willing to work with you, even though some people do not think that is the case. If you file late, the penalty is 5 percent or $435, whichever amount is higher, of your unpaid tax balance for every month you are late filing. This penalty starts as soon as you miss the deadline. It cannot exceed 25 percent of what you owe.
An example of how this might look is:
You owe the IRS $5,000 and you filed 2 months late. 5 percent of $5,000 is $250. $250 x 2 months = $500. That means you owe the IRS $5,000 + $500 = $5,500
If you wait more than 60 days to file your taxes, the penalties change. It becomes the lesser of $210 or 100 percent of your unpaid tax. You may be able to avoid the failure to file a penalty if you can show good cause for not filing on time.
Failure to Pay Penalty
A failure to pay penalty is applied when you do not pay all of the taxes you owe by the filing deadline of April 15. If you do not pay on time, you are subject to a penalty of 1/2 of 1 percent of the money you owe for each month you have not paid in full. This penalty applies to partial months, as well. This penalty begins the day after the deadline for filing taxes.
If you have filed an extension and pay up to 90 percent of your owed taxes, you may not have a failure to pay penalty. You are required to pay the balance by the extended due date. If you have a failure to file and a failure to pay a penalty, the maximum penalty you will pay is 5 percent. You may avoid the failure to pay penalty if you can show good care for not paying on time.
The maximum failure to pay penalty will not exceed 25 percent of the amount you owe. In addition to the penalty, you also will pay interest on the amount you have not paid. The IRS sees it as a loan to you from them, hence the interest.
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Should I File an Extension?
If you use tax preparation services, they can help you determine if you should file an extension. An extension moves the deadline that you have to file your taxes. It can save you from receiving penalties for late filing. If you file an extension, you must file your taxes by that new date, you will not receive a failure to file penalties. I
There is a catch, though. If you file an extension for filing, it does not protect you from paying your taxes on time. Even when you are granted an exception, you must pay your taxes by the original deadline. If you need an extension, but think you will owe money, you can estimate how much you will owe and pay it. This will grant your extension and protect you from failure to pay fees.
What if I Cannot Pay My Taxes?
If you are not able to pay the full amount of your taxes on time, you have a few options. They all have benefits and negatives to them. IRS will agree to installment agreements. The type of agreement depends on your current situation, how much you owe and how soon you can pay it. If you are able to pay the balance within 120 days (4 months) do not set up an installment plan. There is an application fee to set up the installments. There is a penalty on the unpaid balance for every month it is not paid. The penalty is .25 percent per month until the balance is paid. You are also charged an interest of 3 percent on the balance due. The interest rate could change every quarter. If you do not make all of your scheduled payments, IRS can void the agreement.
If you can pay your balance within 120 days, you can request an extension to pay the balance. If you cannot pay your full tax balance on time but can pay within 120 days, IRS will grant an extension. You are charged a penalty of .5 percent per month until the balance is paid.
Other Options
If neither of those options appeals to you, there are some other ways to pay your due taxes. You could request a hardship extension. If must prove to the IRS that paying your tax debt would cause hardship, by IRS standards, you can request a hardship. There is no penalty for hardship, but you will pay interest on the money owed. Right now, you will pay 3 percent interest. This may be less interest than if you were to get a bank loan.
You could consider borrowing the money from a friend if that is an option. You may be able to get an interest-free or low-interest loan from a friend or family member. It may be better to take a ‘loan’ from the IRS. At least you will not run the risk of damaging the relationship if you cannot repay the money. You could borrow from your 401k to pay the IRS. There is a limit to how much you can borrow. You have to pay a small fee and interest, but it is low interest, and you are paying yourself back. The downside is you are borrowing against your retirement. You could pay the balance you owe with your credit card. There is a fee for using your credit or debit card. You then have to pay off the credit card, which means you may pay interest on the balance. If you have a zero-interest or really low-interest credit card, it may be beneficial to pay your tax debt this way.
Where Can I Find Extra Help?
Navigating the tax world is not easy, especially when the deadlines keep moving. The penalties and interest amounts change each year and possibly each quarter. Sometimes it is hard to keep up and know which is the right decision for you. You do not have to figure it out alone. Visit the Goalry Mall and let us help you. We can advise you of all your options and explain all the positive and negative details until we are sure you understand all of your options. There is a right way and a really bad way to handle your taxes. If you handle them the wrong way, you could quickly go down the path of penalties and fees and owe a lot more money.
Conclusion
Filing your taxes may seem like a scary thing, but it does not have to be. When you are armed with all the proper information, you can use that knowledge as power and make the best decisions for you. We have all been programmed to be afraid of the IRS and paying taxes. You do not have to be. As long as you file on time and pay as much as you can every month, the IRS will be satisfied with your monthly payments. You have to go about it the right way, though. Make sure you know all the information and handle your taxes properly.