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What happens if you file taxes late

What happens if you file taxes late

Ah, tax season. The most wonderful time of the year, right?

Well, maybe not. With the 2023 tax return deadline quickly approaching, it's important to be aware of the potential penalties you may face if you don't file your taxes on time.

But fear not! You can avoid the late filing penalty by simply filing something - whether it's your return or an extension request - by the tax deadline.

And even if you can't pay your taxes in full by the deadline, it's still better to file on time and pay what you can than to not file at all.

What happens if you file taxes later than the filing deadline?

So, you missed the tax filing deadline. What now?

First and foremost, don’t bury your head in the sand and hope that the IRS won’t notice. Trust me, they will. The longer you wait to file your taxes, the higher the late filing penalty becomes.

- What's the penalty for filing taxes late?

This penalty is calculated based on the amount of taxes you owe and is usually 5% of the unpaid taxes for each month or part of a month that your return is late, up to a maximum of 25% of your unpaid taxes.

Yikes. That means if you owe $10,000 in taxes and file your return five months late, you could be facing a $2,500 penalty (5% x $10,000 x 5 months).

Ouch.

But wait, it gets worse. Note that the failure-to-file penalty is separate from the failure-to-pay penalty! If you fail to file your taxes for more than 60 days after the deadline, the minimum penalty will be either $435 or 100% of the unpaid.

In addition to the late filing penalty, you may also face interest charges on the unpaid taxes. The interest rate is calculated quarterly and is based on the federal short-term rate plus 3%.

This interest accrues daily and can add up quickly if you owe a significant amount of taxes.

Pro Tip. You will not face the late filing penalty if you file something (a return or extension) even if you can't pay anything by Tax Day.

Even if you owe taxes and can't pay by the tax deadline, eFile a tax extension, a state tax extension, or a tax return as late filing penalties are generally higher than late tax payment penalties.

This can buy you some extra time to get your finances in order and avoid unnecessary penalties.

How to avoid IRS’s penalty for late filing?

Ah, now that we know the potential penalties for filing your taxes late, let's talk about how to avoid them.

The easiest and most straightforward way to avoid the failure-to-file penalty is to simply file your tax return on time. If you can't file your return by the due date, you can request an extension of time to file.

This will give you an additional six months to file your return without incurring the failure-to-file penalty.

NOTE! Keep in mind, however, that an extension of time to file does not extend the time to pay any taxes you owe.

Pro Tip. One of the most crucial things you can do to dodge penalties is to report all your income and deductions with utmost accuracy on your tax return. This reduces the likelihood of audits or penalties related to underreporting your income or claiming improper deductions.

NB! If you’re getting a refund, you won’t be penalized.

Now, if you're one of the lucky ones getting a refund, you won't face any late-filing penalties. Who doesn't love a little extra cash, right? But it's still best to file on time so you can get your refund as soon as possible.

However, if you owe taxes and don't get a refund, that's a different story. But don't fret, there are ways to dodge penalties. Just make sure to file on time or request an extension if you need more prep time.

And don't forget the golden rule: accuracy is the key to everything! Make sure to double-check all your details to avoid any errors.

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Can I get an extension of time to pay taxes?

Yes, you can request an extension of time to pay your taxes if you are unable to pay the full amount by the due date. However - an extension of time to pay does not grant you an extension of time to file your return.

You will still need to file your tax return or request an extension of time to file by the due date in order to avoid the failure-to-file penalty.

To request an extension of time to pay your taxes, you can fill out and submit IRS Form 1127, Application for Extension of Time for Payment of Income Tax. This form must be filed by the due date of your tax return, and it requires a detailed explanation of why you are unable to pay your taxes on time.

NOTE! Even if you are granted an extension of time to pay your taxes, you will still be responsible for paying interest on any unpaid taxes, as well as a late payment penalty. The interest rate is determined quarterly and is currently set at 3% per year, compounded daily.

The late payment penalty is 0.5% of the unpaid tax amount for each month or part of a month that the tax is not paid, up to a maximum of 25% of the unpaid tax amount.

Pro Tip. If you are unable to pay your taxes in full, you may want to consider setting up a payment plan with the IRS. The IRS offers various payment plan options, including short-term payment plans and long-term installment agreements.

By setting up a payment plan, you can avoid the failure-to-pay penalty and reduce the amount of interest you will owe.

FAQ

1. What if I cannot pay the taxes or penalties I owe?

If you're unable to pay your taxes or penalties, contact the IRS to discuss options such as a payment plan or negotiating a lower amount. Be aware that penalties and interest accrue until the debt is fully paid.

2. Can I pay my taxes in installments over time?

Yes, the IRS offers installment agreements for taxpayers who can't pay in full by the due date. However, additional fees and interest may apply, so review the terms carefully.

3. Does the IRS ever negotiate the amount owed?

Yes, in certain situations, the IRS may negotiate the amount owed. If you can't pay your balance, even with an installment agreement, you might settle for less through an offer in compromise.

4. Can I still file my taxes even if it's late?

Yes, you can file your taxes late. Be aware that penalties and interest may apply if you owe taxes. Filing as soon as possible is recommended to avoid the failure-to-file penalty.

Ines Zemelman, EA
Founder of TFX