It can be so easy to get busy and discover that it is already late April and you have not submitted your tax return or paid your taxes. Even if you have requested an extension on filing your tax return, the IRS still expects you to pay an estimate of your tax liability. If you find that you somehow missed Tax Day this year, do not panic. There are a few actions you can take to minimize the negative effects of your oversight.
Take Action Right Away
As soon as you realize you have missed the deadline to file your taxes, take action. The IRS starts calculating interest and penalty fees on the day after Tax Day, which in 2016 was April 18 (April 19 for some states). That means that starting on April 19, you start having extra money added to your tax bill. The sooner you take action, the lower your penalty fees and interest payments will be. If you have complicated taxes and require the help of a professional, make the appointment for as soon as possible.
File Your Return ASAP
Although you should ideally file your taxes and make your payment together, you want to at least file your return, even if you cannot pay. The penalty fee for not filing your taxes is much higher than not paying. When you fail to file, the IRS starts charging 5 percent each month, or a portion of a month, up to 25 percent of your entire tax. This can quickly make your tax liability become an amount outside of your capacity to pay. If you leave it for more than 60 days, then you will have a minimum penalty of $135 or 100 percent of your tax, whichever is the lower amount, but it may be much higher depending on your original tax liability.
Submit (Some) Payment for Your Taxes
When you file your tax return, pay as much as you can toward your tax payment. If you cannot pay all of it, at least put some money toward your estimated taxes. This reduces the amount you will have to pay in penalty fees and interest. The penalty for not paying is smaller than not filing at 0.5 percent per month, up to 25 percent of your total tax. This is added on to the penalty fee for not filing, although it will be a maximum of 5 percent per month. Both penalty fees added together could be a maximum of 47.5 percent of your total tax. For many people, it is this that makes their tax debt so difficult to pay.
There is also interest charged at a rate dependent upon the federal short-term interest rate, with an additional 3 percent added on. Currently, that is around 3 percent, but it changes every few months. The more tax you pay upfront, the lower the amount you will owe, which reduces how much you are charged in interest, as well as the penalty fees, since they are calculated based on the amount due.
If you have already missed the deadline to file and pay your taxes, it is best to file online. The IRS has free e-filing options, or you may be able to find brand-name software that offers free filing for those who meet certain criteria. By filing online, your taxes get processed that much faster, and you can be sure that the IRS has received them.
What About Refunds?
If you missed the tax deadline but are owed a refund, then you don to have to worry about sending in your return. You will not have any late-filing penalties, and you have until April 18, 2019, to get your money. After that, the IRS keeps it. Although you may not be punished for not filing, it is to your benefit to file as soon as possible. Otherwise, you are simply giving the IRS an interest-free loan until 2019, and after that, you are providing the IRS with a donation of your hard earned money.
Options for Tax Relief
If you find that you have difficulty paying your taxes, then you have options, even if you have filed late. You can set up an Installment Agreement with the IRS so that you can pay down your tax bill over a set period of time. This will still be subject to penalty fees and interest, but the penalty fees will be lower at 0.25 percent rather than 0.5 percent. If there was a reasonable cause for not filing and paying your taxes on time, you may qualify for Penalty Abatement, especially if this is your first offense.
There may be other tax relief options for which you meet the criteria. Speaking to a tax professional, like the ones at Fidelity Tax Relief, can help you to find the best option for your situation. You can get your late taxes filed so that you are compliant again and no longer have to worry about any collective action from the IRS due to overdue taxes. Download our eBook on the 8 Tax Relief Programs to learn more today.