You’ve set a goal to file your taxes on time this year. Unfortunately, you’ve procrastinated too long, and it’s tax day, and you don’t have your taxes done yet.
With the past deadline, you’ve considered not filing your taxes and hoping you don’t get audited. However, that might not be the best plan.
If you file your taxes late, what will happen to you? What are the penalties for late tax filing? We’re here to answer those questions and advise on what to do if you file taxes late. Keep reading for everything you need to know.
Basic of Filing Taxes
The Internal Revenue Service imposes a penalty since you have not met the tax filing deadline. The late filing fee can be pretty substantial, depending on the amount of tax owed. Late filers may also be subject to a failure-to-pay penalty for any taxes owed that were not paid by the original tax filing due date.
Interest will also be charged on the unpaid amount from the tax due date to the payment date. In extreme cases, the IRS may also pursue criminal charges, resulting in fines, incarceration, and imposed civil penalties. To avoid these consequences, it is essential to understand the basics of filing taxes and always aim to meet the tax filing due dates.
What You Need to Know to Avoid Penalties
You are liable for late filing penalties if you file your taxes late. Depending on your situation, the penalty for late filing could range from 5% to 25% of the unpaid taxes for each month (or a fraction of a month) that your return is late.
Additionally, you may owe interest on unpaid taxes for the period between the original due date and the actual payment date. If your taxes remain unpaid for extended periods, you may incur additional penalties, such as failure to pay penalties. Filing your taxes by the due date and paying any due balance is essential to avoid unnecessary fines.
Additionally, if you need more time to file, you can apply for an extension if you pay the amount due on or before the filing date. It is important to note that an extension of time to file does not grant you an extension of time to pay, so penalties will still apply if you don’t pay the taxes you owe on or before the due date.
The Consequences
If you file your taxes late, you will incur a penalty from the Internal Revenue Service (IRS). The liability for filing late is 5 percent of the amount you owe for each month or partial month, and the tax remains unpaid up to a maximum of 25 percent. You may also be charged interest on any taxes still owed up to a maximum rate of 25 percent.
The IRS may also place a lien on your assets and properties if you fail to pay your taxes promptly. In addition, if you file more than 60 days late, you may face a minimum penalty of $135 or 100% of the unpaid tax, whichever is less.
Not filing or failing to pay taxes can also result in criminal prosecution. The consequences of not filing/paying taxes on time can be severe and should be avoided.
Strategies for Submitting Late Returns
If you file your taxes late, you will face penalties, interest, and fines. The late filing penalty starts at 5% of the tax owed and increases by another 5% each month up to 25%.
Failure to pay a fine is also imposed. This penalty equals 0.5% of the total taxes per month up to 25%. If you cannot file on time, there are strategies you can use to help minimize the penalties associated with filing late.
If you have filed your taxes late in the past, you can work on filing your taxes on time in the future. You can request more time to file your return, make an installment agreement, or submit a document called an offer in compromise. Additionally, you could pay all the taxes and request penalties and interest be forgiven by applying for reasonable cause.
Potential Benefits of Filing Taxes Late
Filing taxes late can be beneficial in specific scenarios, though the risks should always be considered first. If you file your taxes late, you are subject to penalties, fees, and interest charges; however, this is only if you owe money on your taxes.
If you are owed a refund, there is no penalty for filing late, and waiting can be beneficial. The longer you wait to file your taxes, the greater the likelihood you will receive any refunds or credits you are entitled to, as the Internal Revenue Service (IRS) will not release any funds until returns are filed.
Additionally, filing late allows you more time to prepare your taxes and ensures you take advantage of all deductions and credits. Though filing taxes later than the April 15th deadline could be beneficial in some instances, it is essential to consult with a tax professional to weigh the risks and rewards of filing late regarding your tax situation.
Payment Options
You will still have to pay any taxes due by the filing deadline, even if you don’t file the return until after the deadline. Depending on the payment option you choose, you may be able to make installment payments on your taxes. You may also be able to submit an Offer in Compromise or request penalty abatement if you are eligible.
It is essential to consider which payment option is right for you and always file your taxes on time to avoid tax penalties. You have a few options if you find yourself in this circumstance, including:
Payment With a Credit Card
You may be charged a fee if you file your taxes late and pay them with a credit card. Generally, a processing fee may be associated with the transaction when you process your credit payment through an intermediary service provider. Additionally, you may be subject to a month’s interest on the balance even if your payments will be made in full.
Depending on the issuer, this late fee could range from 2-4% of the total balance, so paying your taxes on time is essential. It is also important to be aware of any other charges related to transferring the payment, as these will add to the cost of tax filing.
Installment Contracts
Most taxing authorities require that any tax debt incurred before entering the installment contract be paid in full. A lien may also be placed on your credit report, making it difficult to obtain financing while the debt is outstanding. Late filing may also result in late payment penalties, interest charges, and additional legal penalties.
Failure to file or pay on time can result in wage garnishments, tax levies, and government seizure of assets. The total costs of filing late can be astronomical with no foreseeable relief. Therefore, filing and paying all due taxes as soon as possible is advisable.
Compromise Offers
The fines can range but often include late filing and late payment penalties. The longer you wait to file, the more you will owe. The IRS offers a Compromise Offer to avoid further penalties and owing more money.
A Compromise Offer is an agreement between you and the IRS to settle the taxes owed for less than what was originally due. The IRS will accept less money if you are caught up on your taxes and up-to-date on payment arrangements.
Additionally, the IRS may lower the amount owed if you can prove financial hardship. Ultimately, the IRS wants to ensure taxpayers can pay what they owe – even if it is late.
Will the IRS Notice if You File Late?
If you file your taxes late, the IRS will take notice. Whether it’s hours, days, or weeks late, the IRS will assess a late filing penalty and any taxes you owe. This penalty is typically 5% of the taxes owed per month with a maximum of 25%, up to a specific limit.
The late filing penalty is separate from the late payment penalty, which is 0.5% of taxes owed per month, up to a maximum of 25%. The longer you wait to file your taxes and the more you owe, the more your penalties can add up.
Furthermore, if the IRS believes you’re filing late to avoid paying a tax bill, they may take more drastic action and assess a higher penalty and additional interest.
How Long Can You Go Without Filing Taxes?
In addition to paying back any tax money owed, you may be liable for failure-to-file, failure-to-pay penalties, and interest on any unpaid balance. Depending on the severity of the violation, the IRS may also assess payroll tax penalties and levies.
Although technically, you can go a lifetime without filing taxes if you don’t owe anything, this is highly discouraged. The penalties and fees can quickly become overwhelming and could result in a fine or even heavy jail time.
On the other hand, if you have accrued tax debt, it’s in your best interest to address the issue as soon as possible and work with the IRS to establish a time payment plan.
The typical statute of limitations for criminal tax evasion charges is six years. Still, the government has unlimited time to collect the taxes you owe and impose penalties. When the IRS catches up with you, you risk experiencing the following things in addition to the failure-to-file penalty:
Failure-To-Pay Penalty
This penalty is a percentage of how much taxes you owe and is based on the time the taxes remain unpaid. Depending on how long the taxes remain unpaid, they can vary from 0.5-25% of the taxes owed. In addition to this penalty, the U.S. government may impose interest charges that increase the longer the taxes remain unpaid.
Even if you cannot pay your taxes in full, you should still file your taxes as soon as possible to avoid additional penalties and fines. The IRS may temporarily waive or reduce the FailureToPay Penalty if you can prove that the late filing was due to factors beyond your control.
Interest
Depending on the taxes due and the filing time, you can pay a sizable amount to cover the interest. This is calculated based on the amount owed and the amount of time past the tax filing deadline.
It is best to file your taxes on time and avoid additional costs. As the amount owed goes up, so does the interest rate, and interest rates increase the longer you wait to file. Additionally, you may be charged various penalties if you fail to pay your owed taxes on time.
Substitute Returns
A substitute return is the IRS’s way of filing a return based on information from third-party sources such as employers, institutions, financial organizations, and securities transactions. If the IRS files a substitute return on your behalf, you won’t be able to claim exemptions, deductions, or credits that might otherwise lower your tax bill.
This can result in an extremely high tax bill and even make you more challenging financially. It’s always best to file your taxes on time to avoid the increased penalties and interest rates of filing late.
Lost Refunds
In general, if taxes are owed, any refund will be delayed until after the taxes are paid. In addition, interest may be charged on the taxes owed while they are late, and late fees may be assessed. If the taxes are not filed by the deadline, the refund could be lost forever; the IRS will not pay refunds to taxpayers who do not file on time.
Filing taxes late should be avoided if possible, as the effects can be detrimental in more ways than just the potential loss of a refund.
Don’t File Taxes Late Starting Today
If you file taxes late, you may face fines and penalties on top of any taxes owed. To avoid this, it’s essential to file your taxes on time.
Don’t wait until the last minute – take care of your taxes early and quickly with an online tax filing service.
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