American taxpayers were granted three extra days to pay their 2016 taxes, thanks to April 15 falling on a Saturday. Although this meant that taxpayers had until April 18 to file their taxes, there are still millions of people who forgot to pay their taxes. If you are one of them, do not panic. Instead, follow these steps to reduce your chances of ending up with a balloon payment that you cannot afford to pay.
The moment you realize that you missed the tax deadline, the very first thing you need to do is go ahead and file a return as soon as possible. This reduces any penalties that you might encounter. Not filing your return is a much more serious thing than not paying your taxes. It is considered a crime, although it is typically not handled that way unless the IRS believes you are willfully trying to evade paying your taxes. However, it does come with hefty fines.
Starting with the very first day that you are late with your taxes, which would be April 19 this year, you start accruing penalty fees at the rate of 5 percent per month or fraction of a month that you are late. Although this caps out at 25 percent, it can quickly add up to a significant amount, especially if you owe tens of thousands of dollars in taxes. If you wait past 60 days to file, then you also face a penalty of $135 or 100 percent of the unpaid tax, whichever one is the smaller amount.
Pay Your Taxes — Or As Much as You Can Afford
At the same time that you file your tax return, be sure to pay your taxes. The minute that you are late in paying your taxes, even if you filed for an extension to file, you start to accrue penalties as well. It is less than the penalty to file, with the penalty to pay fees at 0.5 percent of the taxes you owe per month or partial month. This also caps out at 25 percent of your taxes. However, if you do not file or pay, then you will be charged a total of 5 percent penalty fees per month until it reaches the maximum of 47.5 percent of your tax (which breaks down to 25 percent for the late payment and 22.5 percent for late filing).
Therefore, you want to pay as much as you can afford on your taxes right away. This reduces how much you will be charged in penalty fees, as well as any interest. In addition to penalty fees, any unpaid tax is charged an interest fee of the federal short-term rate plus 3 percent per month.
Know Your Options
If you missed tax day, then you want to know your options, especially if you cannot afford to pay your bill. One thing to note is that if you missed tax day due to circumstances beyond your control, you can apply for Penalty Abatement. If this is your first time missing your tax payment, then you have a good chance of getting your penalty fees waived.
If you simply missed filing and paying the taxes because you forgot, you might not be able to get the penalty fees waived. However, you still can get help paying off the debt through applying for an Installment Agreement. You might still be subject to some interest fees and penalty charges, but it is significantly less than if you simply just didn’t pay. Plus, you are able to negotiate a monthly payment to pay down your taxes over time that makes it much more affordable for you. There are also other tax relief options for which you might qualify.
Do Not Hide Your Head in the Sand
When you miss your tax deadline, the last thing you want to do is simply hide your head in the sand and hope that it goes away. Although there is a statute of limitations on when the IRS can assess and collect your taxes, this is several years, and it is highly likely that the IRS will start collection procedures before that time passes. Additionally, you do not want to be found willfully failing to file a return or evade taxes, as this could lead you into trouble. Instead, connect with a tax professional and discuss your options for filing and paying your taxes, including any back taxes that you might also owe. The sooner you take care of it, the less money it will cost you — and you be free of the stress and hassle related to dealing with federal tax debt.
Contact Fidelity Tax Relief today at 877-372-2520 to discuss your situation with our professionals and find out what additional steps might be open to you for tax relief.