Every year I hear this question from people who just missed the tax deadline. I joke that these are the people who believe that deadlines are only recommendations that really don’t apply to them. Unfortunately, that is not how the IRS looks at it!
Here are the key points to remember when filing late:
- If you are getting a refund, then there really is no problem, since penalties and interest only apply to any balance you might owe. Of course, you should file promptly in order to get your money back. The IRS will not refund you any money owed if you wait three years from the time the return was due.
- If you owe tax, you may be charged a failure to file penalty of 5 percent of the balance due per month (or part of a month), up to a maximum of 25 percent. So try to get your tax return filed as soon as possible to avoid this penalty.
- If you don’t pay your taxes on time, you will also be penalized a failure to pay penalty of 0.5 percent per month (or part of a month) up to a maximum of 25 percent.
- Filing an extension will not eliminate the failure to pay penalty, only the failure to file penalty. You will still be charged interest and the failure to pay penalty up to the date you finally pay the tax.
- If you can show reasonable cause for not filing or paying on time, the IRS may abate the penalties. You should explore this possibility with your tax preparer.
- Don’t ignore the problem and hope it will go away. The IRS, like any large bureaucracy, can often take months or years to send you notices about unfiled and unpaid income taxes. But they will always catch up to you. Ignoring the problem only makes the balance owed larger and can lead to the IRS seizing your bank account, paycheck, and assets.