It is well after the tax deadline of April 15th and you suddenly realize you have not sent in your federal income tax. What now? Many people will panic and think the feds will soon be knocking down their door. Out of fear, many more people will choose to not act and turn in the required forms since they are already so late. It can be a scary situation, especially if you owe taxes to the government and don’t have enough money to pay in full.
While you may feel there is no point in sending in late documents, you absolutely need to act now. File your return as soon as it is complete. A tax professional can help you complete your filing but will be an added expense. Sign all your forms and send them via US Mail with Certified/Return Receipt services to ensure the tax office has received your paperwork.
If You Don’t Owe Taxes
When you complete your taxes and find the IRS owes you money, you will not be penalized. The only downside for you is your refund will be delayed. You can actually get refunds for taxes filed up to three years passed due but finally so late is not something you should attempt.
If You Do Owe Taxes
Send in a check for as much as you can afford. Your penalties for a late filing will depend on how much you owe in back taxes. The late filing penalty is currently at 5% of the total amount you owe to the government for each month you are late. Even if you are only one day late, the penalty for the full month is incurred. There will also be accrued interest at a rate that depends on the current market.
If you need to make payment arrangements, you will also need to include a completed Installment Agreement form with your filings. The Installment Agreement is your request to make monthly payment arrangements to pay off your total debt. It will depend on the total amount you owe and how much money you can afford to pay in each month until the debt is satisfied.
Facing the Fees
Penalties can get quit costly and the later you file, the stiffer the penalty. Even one day late will accrue penalties and interest which increases the overall amount you owe back. The penalty for filing just one day late is 5% of the original balance owed. The maximum penalty for failing to file by April 15 is 25% which is reached by September 16th, five months after the original due date. Taxes not filed within 60 days of the due date will be penalized whichever is the lesser of $135 or 100% of the unpaid tax amount.
If you have not filed your taxes with the intention to commit fraud, expect a significantly higher tax penalty. The rate for penalty will be increased from 5% a month to 15% a month. The maximum amount of penalty can be 75% of the original total amount of taxes owned. This penalty is not initiated very often but the IRS will enforce this penalty if fraud is obviously being attempted.
Dealing With Penalties
The IRS has the direct authority to reduce your tax penalties or even eliminate them altogether provided you make the proper request (penalty abatement). If you can prove ‘reasonable cause’ for not filing your taxes on time, you may have your penalties reduced or waived. The type of permissible excuses varies on a case-by-case basis.
Overall, the IRS wants to work with people who want to be helped. Communication is essential in working through the process of filing late taxes. If you are upfront with the IRS and make an honest attempt to make good on your debts, you can work through the process relatively unscathed. On the other hand, if you choose to ignore your tax obligations or try to cheat the IRS on taxes, you’ll pay considerably not only in taxes but you can face possible legal consequences.