Your Takeaways:

  • If you miss the deadline, file your taxes as soon as possible. This stops the failure-to-file penalty from growing.
  • Pay as much as you can, even if you can't pay it all. This minimizes the failure-to-pay penalty.
  • Options if you can't pay your tax debt: payment plans, offer in compromise, currently not collectible status.
  • File late returns the same as on-time returns. Use tax software if needed.

Filing taxes is a crucial responsibility that comes around every year. However, sometimes life can get in the way, causing us to miss the deadline. While it's not ideal to file your taxes late, it's also important to know that it's not the end of the world.

In this blog post, we will explore what you need to know about filing taxes late and provide you with some practical tips on how to avoid making the situation worse.

File an Extension

If April 15th is quickly approaching, don't let it pass by without filing a tax extension. Even if you can't pay your taxes right now, filing an extension can help you avoid the failure-to-file penalty, which can be extremely costly.

Filing an extension gives you until October 15th to file your tax return. However, once you file your extension, if you have everything you need to file your taxes, you should start working on your tax return to avoid missing any future deadlines.

What Happens If I Miss the Tax Deadline?

If Tax Day has already come and gone, then unfortunately, it's too late to file an extension. If you miss the deadline to file your taxes, you will be assessed two penalties:

Illustration of people standing next to a notice of fines

  • Failure-to-pay penalty: 0.5% for each month your taxes remain unpaid and maxes out at 25% of your unpaid taxes.

  • Failure-to-file penalty: 5% for each month your taxes remain unfiled and maxes out at 25% of your total unpaid taxes.

These penalties can compile quickly, which can substantially increase your tax debt. However, if you take the following steps, you can limit your penalties and, ultimately, what you owe the IRS.

What Should I Do If I Miss the Tax Deadline?

If you miss the tax deadline, its important not to panic. Taking action quickly can help save you a lot of money, while inaction may end up costing you thousands in penalties over the long run. Below are the steps to follow as soon as you realize you missed the deadline.

File Your Taxes

April 15th is generally the deadline to file your taxes without receiving a penalty for filing late. If you miss the deadline, you can and still should file your tax return as soon as possible.

After missing the deadline, filing your tax return is the only way to stop the failure-to-file penalty. Each month you fail to file your taxes, the penalty gets worse.

To demonstrate the importance of this, let's look at an example of someone who owes $1,000 in taxes and missed the tax deadline. If that person files after one month, they would owe $50 in penalties. However, if that same person waits 3 months to file their taxes, they would owe $150 {(1, 000 x 0.5) x 3}.

Pay What You Can

Even if you can't pay your entire tax debt immediately, it's a good idea to pay what you can on your taxes. The late filing penalty and late payment penalty are both calculated as a percentage of the taxes owed. The lower the remaining balance on your taxes is, the lower the penalties will be.

What If I Missed the Tax Deadline and Am Owed a Refund?

As you may have noticed, all of the penalties and fees for filing late are assessed based on the tax debt you owe the IRS. Therefore, if you're actually owed a refund after filing your taxes, then you won't be penalized for filing late!

However, there is a downside to filing late, if you are owed a refund. First and most importantly, that's money that should be in your bank account instead of with the government. You're losing out on potential interest or gains or buying that new lawn mower you've wanted by not having the money in your account.

If that's not incentive enough, if you fail to file your taxes within 3 years of the tax deadline, the IRS is no longer required to give you a refund. Therefore, its best to file your taxes as soon as possible to avoid missing out on the money that you're owed.

What If I Can't Pay My Tax Debt?

A lot of people avoid filing their taxes because they can't afford to pay their tax debt. Not filing and ignoring the debt only makes it worse. The good news is that the IRS does work with you if you truly cannot pay your tax debt.

In general, you have three options when you can't pay your tax debt:

  • Installment Agreement: You can establish a payment plan to pay off your tax debt in increments. An installment agreement won't stop interest from accruing on your debt or late-payment penalties, but it will keep the IRS off your back.

  • Offer in Compromise: An offer-in-compromise allows you to negotiate your tax debt with the IRS. If you're truly unable to pay your debt, then the IRS may reduce the amount you owe in order to collect on at least some of the debt.

  • Currently-Not-Collectible Status: If you've fallen on hard times, you can apply for currently-not-collectible status, which will pause IRS efforts to collect your tax debt. However, this is only a temporary solution, and you will still have to pay your debt once your financial situation improves.

How Do I File My Taxes After the Tax Deadline?

You can file your taxes after the deadline the same way you would if you were filing your taxes on time. You can use a tax-preparation software to help you with this.

For the future, if you're not ready to file your taxes by the April 15th deadline, file a tax extension to get an additional 6 months and extend your deadline to October 15th. If you're not ready to file, file an extension today!

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