Tax season comes around quickly, and procrastinators can find themselves in dire straits when that filing deadline arrives. The process of filing your tax returns can be complex, rife with confusing forms and a variety of dates to keep track of. Don’t let this complexity be the reason you avoid filing your taxes. Many choose to avoid filing when they know they can’t pay their tax debt, others don’t have the information they need to complete their return, while some simply forget to get their returns in by the designated date. Regardless of your reasoning, it’s important to understand the ramifications of late filing.
When it comes to tax mistakes, failing to file and filing taxes late are two of the worst a taxpayer can make. Filing your tax return by the deadline is crucial, whether or not you owe money to the IRS. Learn about the serious consequences of late filing and discover the ways you can avoid racking up penalties and interest.
How Much is the Penalty for Filing Taxes Late?
The deadline for filing your taxes is always mid-April; in 2019, this deadline falls on the 15th.
If you miss the filing deadline, and fail to file an extension, prepare to pay a hefty penalty for late taxes. The failure to file penalty applies to any tax that is unpaid as of the filing date. The penalty is charged at 5 percent for each month or partial month that your tax return is late. The clock starts the day after the initial deadline, and continues to accrue until you file your return. The longer you wait to file, the worse the penalty will be, so time is truly of the essence.
If you don’t file your return within the first 60 days following the tax deadline (or extension deadline if you filed for an extension), you’ll automatically be charged $135, or 100 percent of your total tax debt—whichever is less. If you can prove to the IRS that your return was filed late for a reasonable cause, including, but not limited to, medical emergency or another unforeseen circumstance, the government agency may waive this additional penalty.
What’s Worse: Filing Late or Making Late Payments?
The IRS considers failure-to-file a more serious issue than failure-to-pay, and enforces a smaller penalty for late taxes. While both can increase your overall tax debt, the consequences of failing to file are more immediately felt and more severe.
Can I File an Extension to Avoid Late Penalties?
Yes! Life happens, and that mid-April deadline can sneak up on you. If you know you won’t be able to file on time, be sure to file an extension with Form 4868. This request gives you six more months to file, meaning you don’t need to get your tax return into the government agency until mid-October.
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Is There a Penalty for Filing Taxes One Day Late?
You missed the deadline by a day—are you subject to late fees? Yes; if you owe the IRS money, then unfortunately you’ll be slapped with a penalty. Even filing a day late means paying the penalty, although it’s always better to be only a little late, versus months’ late. Why? As mentioned, your penalty increases the longer your taxes go unfiled. Even if you can’t currently pay your tax debt, it’s important to file and avoid added penalties and fees.
Do I Get Penalized for Filing Taxes Late If I Owe Nothing?
Three out of every four taxpayers receives a tax refund. If you’re one of those three and you don’t owe the IRS anything, you won’t face a penalty. However, filing taxes late means the longer it will take to receive your refund. You can still file late and receive your refund up to three years after the initial deadline; however, if you haven’t filed your 2017 taxes by April 15, 2021, any unclaimed tax refunds are automatically turned over to the U.S. Treasury.
This chart outlines the tax filing deadlines for each tax year, and indicates the date by which you need to file a return in order to receive your tax refund.
|Tax Year||Tax Filing Deadline||Tax Refund Deadline/File Return By|
|2017||April 18, 2018||April 15, 2021|
|2016||April 18, 2017||April 15, 2020|
|2015||April 18, 2016||April 15, 2019|
|2014||April 15, 2015||April 15, 2018|
|2013||April 15, 2014||Deadline has passed|
Keep these dates in mind to ensure you get the tax refund you’re owed before the clock runs out.
How Are Late Income Tax Penalties Calculated?
So, you’ve filed on time and avoided the failure-to-file penalty, but you’re unable to make your income tax payments on time. Estimating how much you’ll be expected to pay in addition to your tax debt can be complicated, as the IRS examines tax debt on an individual case-by-case basis.
Are There Different Penalties for Failure-to-File and Failure-to-Pay?
Yes. Late filing and late payment are not the same thing. If you owe taxes to the IRS and you file late and submit payment late, you’ll be subject to penalty charges and interest for both. When these penalties and interest rates are combined, the total penalty for late taxes and failure to pay can add up to a whopping 47.5 percent (22.5 percent for filing taxes late plus 25 percent for late payments).
Can I File for an Extension of Time to Pay My Tax Bill?
Yes, but there are strict requirements that can make this solution hard to come by.
You can file an extension of time for payment of tax with Form 1127. In order to qualify for this filing:
- The IRS must receive your Form 1127 on or before the date your tax is due.
- You’re required to provide a comprehensive statement of all of your assets and liabilities at the end of the month. You must also provide an itemized list of money received and spent for the three months preceding your request for an extension to pay.
- You must be able to show that paying the tax by the deadline would cause undue financial hardship.
- You must be able to demonstrate that paying your tax debt would cause undue financial loss, and prove that you don’t have the means to raise the money through borrowing or selling property.
I Can’t Pay My Tax Debt in Full. What Are My Options?
If you’re unable to pay your tax debt, it’s important that you still file on time, or ask for an extension to file. If you can’t pay at least 90 percent your tax debt by the original deadline or the extension deadline, typically you’ll be subject to penalties. The longer it takes you to file and pay, the more penalties you’ll accrue—but how are you supposed to pay off a bill that continues to rise? There are a few ways to avoid excessive penalties. Consider one of the following solutions:
- Pay with a credit card: If you don’t have the money to pay for your tax debt currently, you can choose to put in on a credit card. At its core, this is essentially trading one debt for another, but choosing the right credit company could help you pay less in the long run, as you’ll likely qualify for an interest rate that costs less than the penalties the IRS will enforce.
- Offer in Compromise: If it’s apparent that you’ll never be able to pay your total tax debt, the IRS may agree to an Offer in Compromise. This solution requires the taxpayer to come up with a new balance; if the IRS agrees to this offer, the remainder of your balance (anything more than the new number you’ve agreed upon) is forgiven.
Unable to pay your taxes in full?
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In order to qualify for an offer in compromise, you must continue to make payments on your debt while the IRS considers your request. If not, the Offer in Compromise will be denied. You can apply for an offer in compromise with Form 656, which comes with a $186 application fee (if your income is below the specific poverty level, this application fee may be waived).
You’ll also be required to detail important financial information using one of two types of Collection Information Statement: Form 433-A (for individuals) or Form 433-B (for businesses). If you’re currently married and live in a community property state, you may be required to provide detailed data on your spouse.
The information flow doesn’t stop at these forms. The IRS will take a deep look into all of your financial records, including vehicle registrations, bank records, paystubs, and anything else they may deem important for their decision-making process. It’s not uncommon for taxpayers to submit stacks upon stacks of paperwork for IRS review, and you may need to dig through scores of past financial statements—not unlike preparation for an IRS audit.
The IRS uses this information in order to determine your reasonable collection potential. The offer you make must equal the net realizable value of your assets along with your excess monthly income (the amount left over after your monthly necessary expenses are subtracted from your monthly total income). Keep in mind that what the IRS deems as a “necessary expense” could be much different than your definition.
If you don’t receive approval, this paperwork gives the IRS all it needs to come after you quickly for collection after the negotiation process has ceased. It’s also important to keep in mind that interest continues to accrue during the negotiation; if your request is denied, you’ll end up owing more than you did previously. These potential consequences make it crucial for you to create and submit a realistic offer in compromise request that is likely to be approved.
There are typically three instances in which the IRS will approve an offer in compromise request:
- When there is reasonable doubt that the tax debt owed is incorrect
- When there is doubt you could ever hope to pay off your debt in full
- When paying the total amount due would cause undue financial hardship
It’s difficult to get approval for an offer in compromise, and it’s important to work with a qualified tax professional to create a realistic solution that works for both you and the government agency. Contact the professionals at Community Tax to discover the ways an offer in compromise may settle your outstanding tax balance.
- Installment Agreements: If you can’t currently pay off your tax debt in full, but would be able to if given more time, the IRS may approve your request for an installment agreement.
You can apply for one of these agreements with Form 9465 Installment Agreement Request, which is used to ask the IRS for a monthly payment plan that will allow you to pay off what you owe in a pre-specified amount of time.
To qualify, your total tax debt must be less than $50,000, and you must be able to pay off your balance within 72 months. This is most often used when paying old tax debt, but could be useful in failure-to-file situations that have caused your total balance to skyrocket due to penalties and interest. However, therein lies the stipulation: the IRS will not accept an Installment Agreement request if you’re not up to date on all of your current tax filings, so getting your tax return in is the first step.
While the IRS assesses your request, you must make the payments as set out in your request, and you must file all taxes on time in the future; if you fail to do so, the installment agreement can be revoked and the IRS can come after you for the original tax debt owed.
We have a team of dedicated experts skilled in negotiation installment agreements with the government agency. We can ensure your tax filing status is up to date and come up with plan provisions that suit your financial needs and capabilities—while appeasing the IRS to help you avoid further penalties and costs.
- Filing for Bankruptcy: This is typically a last-ditch effort for taxpayers in difficult financial straits, and should only be considered as a last resort.
Only certain tax debts can be wiped out. If the following conditions are true of your tax debt, you may be able to discharge your debt with Chapter 7 Bankruptcy filing.
Always speak to a tax professional or accountant before filing for bankruptcy. This action can have lasting ramifications and it’s important to consider all available routes before deciding on bankruptcy.
- It’s been 240 days: The IRS must have assessed your income tax debt 240 days before you file a petition for bankruptcy. However, this time limit can be extended if the IRS suspended collections due to installment agreements, currently uncollectible status, or offer in compromise filings. In some cases, you may be able to file for bankruptcy if the IRS has yet to assess your debt.
- Your debt is three years old: You can only discharge tax debt through bankruptcy if your tax return was due at least three years prior.
- You’ve filed your tax return: You have to file a tax return for the debt you with to discharge at least two years before filing for bankruptcy. As you can see, the penalties for filing taxes late are long spanning, and could affect your financial options for years.
- You didn’t commit fraud or evasion: If you filed fraudulent return or you attempted to avoid paying your taxes, you cannot file for bankruptcy.
- Your tax debt is income taxes: Any other taxes—like fraud penalties or payroll taxes—can’t be solved with bankruptcy.
If you’re unsure which of these solutions best suits your needs, contact the team of tax resolution specialists at Community Tax. We’re well versed in IRS negotiations, and can help you create a plan to settle your debt and make your necessary payments in the quickest time frame possible.
Failure to File Tax Return Statute of Limitations
If you fail to file your taxes, whether you’re owed a refund or you owe the IRS money, there’s no statute of limitations on tax collection. That means years down the line, the government agency has the right to assess and collect on taxes.
Don’t file your taxes late, and don’t fail to file. Pay attention to deadlines and file your tax return regardless of whether or not you can afford to pay what you owe the IRS. Working with Community Tax means never worrying about late penalties and filing mistakes. With our tax preparation and tax resolution services, you can find a professional tax program that suits your needs and build the foundation for a lucrative financial future.