You missed the tax deadline. Maybe you knew. Perhaps you didn’t. Either way, there are some steps you now must take to get back on track with the IRS. There’s no need to panic. The government runs like any other business. There are fees and penalties for late filing, but only evasion is considered a crime. This article will explain all this. Some key takeaways:
- The IRS charges failure-to-file and failure-to-pay penalties for unfiled tax returns, so it’s important to file as soon as possible, even if you’re late.
- Required filing documents include W2s, 1099s, receipts for deductible expenses, and records of estimated tax payments you made last year.
- E-filing gives you immediate confirmation that you submitted your tax return, and it’s faster than paper filing. Use certified mail if you paper file.
Don’t Panic: Understanding Tax Deadline Consequences
You’re not the only one going through this, particularly this year. New tax regulations, market volatility, and new federal financial policies have caused disruptions in the workplace and at home. Missing a deadline is understandable, so don’t panic. Let’s begin by reviewing the potential consequences of this minor misstep. The IRS charges two types of penalties.
- Failure-to-file penalty: Your missed filing will incur a penalty of 5% of unpaid taxes per month, with a maximum penalty of 25%. This penalty is eliminated by filing your return, so you must do so as quickly as possible.
- Failure-to-pay penalty: The failure-to-pay penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. Like the failure-to-file penalty, this penalty cannot exceed 25% of your unpaid taxes.
The failure-to-file penalty is the more expensive of the two and the easiest to eliminate. Once you file, it stops accruing, but you’ll still need to pay any outstanding amount. The failure-to-pay penalty continues as long as you have an unpaid tax bill.
File Your Tax Return ASAP
We can’t emphasize this enough. File your return as soon as possible, even if you don’t have the money to pay the bill. Penalties and interest on unpaid taxes are compounded, causing the bill to increase rapidly. Neglecting this might put you in a financial bind that could take years to resolve. If you’re reading this immediately after the deadline, it’s time to submit your return.
Gather your W2s, 1099s, receipts for deductible expenses, and records of estimated tax payments you made last year. If your records are scattered or incomplete, this process could take time, so don’t procrastinate. Make a list of the employers and providers who owe you tax documents. Most should have a digital copy available on demand.
E-filing is faster than paper filing, making it a good option when you’re late. E-filing also gives you immediate confirmation that you submitted your tax return. That could come in handy later if you get audited. If you file a paper return, send it via certified mail with a return receipt requested. It’ll take longer, but you’ll have proof that you have filed.
Determine If You Qualify for Penalty Relief
The IRS isn’t a nameless, faceless automaton determined to take your money. It’s run by people who understand that mistakes happen. If this is your first time missing a deadline, there may be penalty relief available. To qualify, you must have no penalties for the past three years and have filed all your previous returns on time. Read the IRS page on penalty relief for more information.
You can visit the website or call the IRS to see if you qualify for penalty relief, but you’ll need to file for it in writing with Form 843, which is a claim for refund and request for abatement. You could also qualify for their “reasonable cause” benefit if you missed the deadline due to extenuating circumstances like illness, a death in the family, or a natural disaster.
Active military service in a combat zone and living in a federally declared disaster area are also valid reasons to apply for relief. Be prepared to provide supporting documentation for any request that you make. The Internal Revenue Service, like all federal agencies, is under intense scrutiny right now, so they need to document all actions carefully.
Tax Payment Options If You Can’t Pay in Full
It may seem like the most obvious solution to pay off a past-due tax bill is to negotiate an installment plan. The IRS offers them, but you’ll want to investigate other options before you sign up for one. A personal loan or low-interest credit card may be a more cost-effective option, and an unsecured creditor won’t come after your house if you default.
Another option is to make an “Offer in Compromise.” This is an IRS financial hardship program that allows you to settle your tax debt for less than what you owe. To qualify, you must prove that you can’t afford an installment plan or pay back taxes by liquidating assets. You can request an Offer in Compromise (OIC) by filing Form 656 and paying the application fee.
Please contact our office before requesting either of these options. Tax regulations and qualifying criteria are subject to frequent changes. Our CPA team tracks these changes and can guide you through the best ways to file and pay your federal taxes. We can also walk you through state tax options, including filing deadlines, state tax credits, and itemized deductions.
Conclusion
Missing a tax filing deadline is not an epic disaster, but it can be expensive. You’ll want to file your return as soon as possible to eliminate failure-to-file penalties and minimize failure-to-pay penalties if you can’t afford to pay the full balance owed. Our team at D&M Accounting can assist you in negotiating an installment plan, extension, or offer in compromise if needed.
It’s best not to procrastinate on this. Call our office today at 262-253-9955. We’ll help you resolve this year’s tax filing and set you up with calendar reminders and tax planning that will ensure you don’t miss next year’s deadline. You can also use the form on our Contact Page to book an appointment. Our team is standing by to assist you.
