Life gets so busy that it becomes easy sometimes to forget to do even the most important activities, such as filing and paying your taxes. Even though taxpayers had an extra day to pay their taxes this year, thanks to a glitch in the online payment page on the IRS website that led to a last-minute extension until Wednesday, April 18, it still remains easy to put off tasks so long that you ultimately forget to do it.
So, now that you see the date on the calendar and realize that Tax Day just slipped by you unawares, what are you supposed to do? There are three simple steps to take that will get you back into good shape and minimize the consequences of being late.
File Your Return
The very first thing to do is to file your return as soon as you possibly can. Do not continue to put it off, thinking you already forget so what is the big deal. The longer you wait to file your return, the larger your tax bill. You start to get charged penalty fees from day one past, and they only accumulate from there.
The IRS penalty for late filing is 5% of your tax due per month, including any single day of the month for which you were late. This accrues to 25% of your total tax. If you wait for more than 60 days to file your tax return, then you will have a minimum penalty of $210 or 100% of your outstanding tax, whichever amount is lower.
Which would you rather pay: penalty fees that have accrued from just a week or those accruing over a period of two to three months? The total amount that you have to pay the IRS will be much less the fast you take action to fix your mistake and get your taxes filed.
Make a Tax Payment
As soon as you notice you forget to file your tax return, make a tax payment. You can even make a payment before you file your return based on your estimates of your tax liability. The penalty for late payment is less than that for late filing. The penalty fees for late payment are 0.5% per month, which also cap out at 25%. If you have a late-filed and late payment, you will pay 5% per month in penalty fees.
In addition to your late filing and late payment penalty fees, you also will owe interest at a rate equaling the federal short-term rate plus 3%. As of publishing this blog post, the interest rate is 5%. The interest-only adds to the total amount you end up paying. The sooner you pay your taxes, the less interest you have to pay.
If you are unable to pay the entire amount you owe at this time, pay as much as you can. This reduces the amount of tax you owe, which in turn reduces the amount you will also pay in penalty fees and interest. You can also set up an Installment Agreement, which lets you negotiate a settlement to pay down your tax over time with lower monthly payments. You still will have to pay interest and penalty fees, but the penalty fees will be 0.25% per month rather than 0.5% for late payments. The interest rate stays the same: federal short-term rate plus 3%.
You can also look into other ways of paying your tax. In many cases, you will have better terms if you take out a personal loan or pay with a credit card than you would with an Installment Agreement with the IRS. Regardless of how you do it, make the largest payment possible towards your tax bill, ideally paying the entire amount.
See If You Qualify for Penalty Abatement
The IRS offers a program known as Penalty Abatement, which allows you to remove some or all of the penalties that accrue on your outstanding tax return and payment. The qualifications for this are vague, falling under reasonable cause. You cannot get penalty abatement because you could not pay your tax bill or simply forgot. However, many circumstances fall under reasonable cause, including:
- Natural disaster
- Death of a family member
- Severe illness of yourself or a family member
- Inability to collect all necessary documents despite trying
If this is your first time late with filing and/or paying your taxes late, then you may apply for First Time Penalty Abatement. This has fewer requirements, making it easier to be approved and remove the penalty fees from your tax bill. Unfortunately, there is no way to remove the interest fees from your tax bill, unless it is caused by an IRS error.
Do not sit around and lament that your tax bill is increasing because of your mistake or berating yourself for not taking care of your taxes when you should. Instead, take action to fix the problem. File your return, pay your taxes, and see if you qualify for Penalty Abatement and/or an Installment Agreement. If you still struggle with paying your tax debt, you may also qualify for one of the other tax relief programs, such as Currently Not Collectible or Offer in Comprise.
If you have back taxes from previous years or a massive tax debt and need help finding relief, then contact Fidelity Tax Relief today by calling 877-372-2520. Our tax professionals will review your case and determine the best course of action for you.