4 Important Facts You Need To Know About Filing Taxes Late!
Faced with filing taxes late? As the saying goes, taxes are one of the only facts of life. You can't avoid them - not filing or paying your taxes can have huge financial consequences. Sometimes, filing taxes late is unavoidable because of the other demands of life. However, filing taxes late can be quite disruptive. The IRS wants everything to run on time and can come after you if you avoid filing a tax return.
You need to know what happens if you end up filing taxes late. This helps you deal with the penalties, and take steps to avoid missing the deadline.
4 Facts: Why You Should Avoid Filing Taxes Late
Before we dive in, it's important to note that penalties scale only based on the amount of money that you owe. If you don't end up owing the IRS anything, you'll pay the minimum fine ($135- but more on penalties later on). However, it's still important to file even if you expect a refund.
If you file your taxes more than three years late, the IRS will not issue you that refund, and you'll end up losing that money - plus the penalty.
Not Filing Your Taxes Is Worse Than Not Paying
Though it may seem counter-intuitive, the IRS will hit you with harsher penalties if you do not file your taxes than if you don't pay the balance you owe. This is because a failure to file could mean anything, whereas a failure to pay already has an outstanding balance determined.
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In comparison, the penalty for failing to file is 5 percent a month (even if it ends up being a partial month) up to a maximum of 25%. If you file within 60 days of the filing date, the minimum you owe is either $135 or the total amount you owe, whichever is smaller. Failing to pay your taxes still has a maximum penalty of 25 %, but the IRS will only charge you 0.5 % a month.
Both penalties will be charged on the day after the tax filing deadline, but the IRS will never charge you more than five percent a month.
You'll Have To Pay Interest On Top Of Penalties
While the penalties of not filing are high, they'll be combined with interest payments if you owe a balance. That rate is compounded daily and is the federal short-term rate plus another 3 percent. The federal short-term rate will change over time, and you can check it on the IRS website.
This means that even a small balance owing can quickly balloon out of control since the IRS will charge you both penalties and interest. Failure to file and pay can lead to serious jail time - up to five years.
You Can File For An Extension
The IRS is not out to be combative with you. If you know that it will take some time to get your financial documents in order and you are likely to miss the April 15th deadline, you can file for an extension. Applying for a tax extension is a straightforward process that you can do right on the IRS website.
Keep in mind that filling out an extension to file will not move your obligation to pay. This means that if you are asking for an extension to file your taxes for a certain year, you'll have to estimate what you owe. You'll also need to make a payment towards that balance. If you pay 90 % of what you owe or more, the IRS is unlikely to levy a penalty against you.
This gives you an incentive to pay as much as you can - or as close to your estimate as you can. You can make a fairly close estimate if you have previous years' W2 forms. While you can actually file a tax return without this year's W2, hopefully, you won't have to do so. Just use the previous years' forms to come up with a rough estimate of what you owe, and make a payment off of that.
Failing to make a payment means that you will be hit by late payment penalties, as well as interest charges. However, even if you aren't able to pay, filing for an extension will change your penalty from the 5 % charge to the 0.5 %, saving you a ton of money.
For some reasons if you don't get your W2 form, you need to quickly take actions before it is too late. You may also want to learn more about paycheck deductions in order to understand your W2 filing especially for small businesses.
You Can Apply For A Payment Plan
Another important thing to note is that you should always file your taxes on time to avoid late filing penalties. Even if you cannot pay right then, you can apply for a payment plan, which allows you to break what you owe up into a set of smaller, more manageable chunks. Of course, if you fail to file on time, it's less likely that the IRS will be willing to put you on a payment plan.
For larger balances, they're more likely to pursue you for criminal intent and take you to court. Even if you're not prosecuted for tax evasion, you'll still have to deal with interest on the balance owed. A full guide to filling W2 form is always a good read.
Don't Let Tax Season Blindside You
In general, the best thing that you can do if you think you may be filing taxes late and missing the tax filing deadline is to speak to an accountant. A tax professional will be able to help you get the documents you need, and walk you through the extension and payment process. They'll also help you keep the penalties and interest that you have to pay as low as possible.
Let's help you streamline your efforts and be on your way, create a paystub easily today in minutes! Once you get the taxes matter sorted out, you may want to check out some helpful tips on how to reach financial stability during the Covid 19 pandemic and the new divorce tax rules that could change the course of your entire life if you're not being careful.
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