Missing the tax deadline can be a stressful situation, and in this case, ignorance is not bliss. There are specific consequences that will take place if you don’t file your taxes by the April deadline. Thankfully, there are steps you can take to avoid this mishap, some of which are quite simple.
What happens if you miss the tax deadline?
1. You’ll receive notices
When you first miss the tax deadline you’ll begin to receive notifications from the IRS in your mailbox. It will likely include a balance due for any unpaid taxes or overdue tax filing. This piece of paper can immediately cause stress, but take a deep breath.
In my personal experience as a small business accountant, the amount you end up actually paying is often much different than the initial amount due.
Each notice will be associated with a specific case you can reference when calling or writing them to resolve it. The IRS will not make phone calls to you; they communicate solely through mail. You can respond in kind or call them using their secure phone number.
2. Penalties and interest will be assessed
There are multiple fees associated with missing the tax deadline. Each one depends on the type of infraction you’ve incurred.
Here is a list of how the fees are broken down:
- Failure-to-File (FTF) penalty: This fee is 5 percent per month until the tax return is filed, or up to 25 percent max.
- Failure-to-Pay (FTP) fee: This charge is 0.5 percent of your unpaid taxes each month after the due date. The fee is waived if you pay at least 90 percent of the tax balance by the deadline.
- Interest due: Any amount of taxes you owe will also have an interest rate attached to it. The exact amount varies based on your personal situation, but is usually around 3 percent and is compounded daily.
In the event you are assessed any of these tax penalties, you can speak to an IRS agent and explain your situation. They aren’t quite as scary as they’re often made out to be. They’re regular people just like you and me, and are willing to listen to your case.
Certain life events could qualify you for having tax penalties waived, such as a death in the family, a new baby or major surgery. The worst you can do is ask and see if they can help.
For more information on tax fees and other penalties, check out the IRS website.
3. You have options
One of the most common reasons for missing the tax deadline is that you’re unable to pay the taxes you owe. However, the IRS offers several different options if you need more time to prepare your taxes, or make payments.
- Request an extension: You must file your taxes, and pay the balance, by the tax deadline. If you don’t, you’ll be faced with a FTF penalty charge. However, you can file an extension to extend the amount of time you have to file. Form 4868 is the official request you’ll need to make to receive an automatic extension of time to file your income taxes. This will give you an extra six months and extend the tax filing deadline until October of the same year.
- Pay as much as you can: No matter how much you owe in taxes it’s important to pay as much as possible. The more you’re able to pay towards your balance, the fewer penalties you’ll be charged. It’s often a better financial choice to use a credit card or borrow money from a friend, than to owe the IRS money. Think outside-the-box when searching for funds to pay your tax bill.
- Apply for a payment plan: If you find that you aren’t able to pay any part of your tax bill, you can apply for a payment plan. The IRS offers installment agreements and payment plans for taxpayers who owe less than $50,000 of taxes and are within certain income brackets. Simply print out the appropriate form and mail it, or call them using the 1-800 number provided on their website. If approved, you’ll typically have a full 72 months to repay the entire balance.
4. Immediate action is needed
The sooner you take action to rectify your tax situation, the better off you’ll be. If you know there’s going to be an issue, contact the IRS before they flag your account and contact you. You’ll show you have nothing to hide by being upfront about the situation, which will in turn make the IRS more apt to work with you on payment plans or an extension.
5. Plan ahead for next year
The best way to avoid missing the tax deadline in the future is to create a plan of action for the next year. Get set up with bookkeeping software or start working closely with an accountant so you can track your income and expenses.
Aim to stick to a regular schedule of checking in with your finances and make estimated tax payments if needed. All of these steps will help you avoid further tax penalties next year.