Life often gets busy, and one can easily forget some of their obligations. Everyone needs to file their taxes on time, but it’s easy to get carried away with the hustle and bustle of life and let things slip. It’s important to take the right steps if you realize you are late on your taxes. This guide explains what happens if you file taxes late and some ways to remedy the situation.
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ToggleThe Consequences of Filing Taxes Late
Being late on taxes can be stressful because failure to pay up can lead to damaging consequences. The IRS will likely impose some penalties or sanctions when you make no effort to pay your taxes on time. These consequences may include:
- A damaged credit score
- Additional interest
- Penalty charges
- Criminal prosecution
The IRS takes a rigid stance regarding paying taxes, so you should avoid experiencing what happens if you file taxes late. Having the services of a qualified tax professional can help you find the best resolution to get back on track.</
What to Do If You File Taxes Late
The IRS can be tough on late filers, but it’s not completely unforgiving. Tax law allows several options when you file taxes late. Here are some ideas to consider:
Apply for an Extension of The Deadline
You should always request an extension if you think you’ll be late, which typically pushes the deadline date back to October. Filing for an extension doesn’t extend the deadline to pay taxes, but it does protect you from additional penalties for missing the filing deadline. You’ll need to file IRS Form 4868 or make an electronic tax payment if you wish to request an extension. The other alternative is to make an electronic tax payment before the deadline. Be sure to indicate that the payment is for an extension, whether you’re paying the income tax partly or in full. You can easily do this by using the IRS service Direct Pay to pay from your bank directly or with a debit or credit card.
File Your Returns Anyway
It’s worth noting that you should still file your returns by the filing deadline, even if you cannot pay the amount to clear your due taxes. Failure to file your returns while owing taxes will earn you a penalty ranging from 5% of your due tax each month from the filing deadline to a maximum of 25%. This also accrues a 1% monthly interest. Failing to pay the due tax after filing will only earn you a penalty of 0.5% of the tax due monthly until you complete the payment in full. The reduced penalties are a significant reason to file your taxes late instead of not filing at all.
Start by Paying as Little as You Can
It would also be wise to start paying off the debt to reduce the penalties and interest you will incur. This may mean borrowing from friends and family, taking a personal loan, digging up your savings, using your credit cards, or taking some money from your retirement savings. A tax bill of $5,000 will accrue interest and penalties on that entire amount. Paying what you can on the balance will reduce your fines and interest significantly.
Apply for an Installment Agreement
An installment agreement is a payment plan with the IRS that allows individuals to pay the tax debt in monthly payments over an extended time. You can pledge how much you will pay monthly and agree to have the amount automatically debited from your account. This plan will include additional fees and interest, though much lower than you would have incurred had you borrowed from other lenders. You can personally submit Form 9465 to request an installment.
Request an Offer In Compromise
An offer in compromise (OIC) by the IRS lets you settle the tax due for an amount less than that owed. Maybe you owe the IRS $15,000, but you are only able to pay $500. An OIC is often considered the last resort when you have explored all other means and still cannot pay. You can only qualify for an offer in compromise after approval by the IRS. This means you have to pass all the eligibility requirements based on your income, ability to pay, assets, and expenses. You may qualify for an OIC if:
- The IRS incorrectly determined the amount you owe.
- Your assets and income are less than the amount you owe.
- The amount is correct, and you can pay the debt in full, but doing so would cause undue economic hardship.
The following are some factors that may disqualify you from getting an OIC:
- You are in an open bankruptcy proceeding.
- You have not filed the required tax returns.
- You have not made the required estimated tax payments.
- You are self-employed, have employees, and you have not submitted the required federal tax deposits.
You can choose your preferred payment plan either in one lump sum or in periodic payments if you qualify for an OIC. This process requires you to submit a complete personal financial statement and an application fee of $150 in addition to Form 656. The IRS may reject your application, so it’s crucial to be meticulous in the calculations and details.
Apply for a Full-Payment Agreement
It is best to apply for a full-payment agreement for short-term issues in which you will be able to pay your entire tax bill within 120 days. Interest and penalties will still accrue until you pay the total amount, but no additional fee will apply.
It might be time to bite the bullet if you’ve been procrastinating on filing your taxes. The IRS doesn’t take too kindly to late filers and will put continual pressure on you to get current on your obligations. Hiring a tax professional can help you find the best way to alleviate some of these problems.
We Can Help You Sort Out Your Tax Problems
Now that you know what happens if you file taxes late, you should take the proper steps to avoid more penalties. Silver Tax Group has a staff of experienced tax attorneys who can guide you to the best response to any IRS sanctions. Our team will work with you to ensure that you file your taxes correctly and avoid any penalties, and we will defend you in any disputes with the IRS. Simply contact us today for a quick consultation with a tax attorney.