You know the feeling of forgetting to take the trash out to the curb? And now you’re stuck with old garbage untilyour Mount Vernon garbage man takes care of it the next pickup day? Let’s carry that analogy to your late tax filing.
Because there’s an important tax deadline day that just came and went… and if you missed it, you might be left with a similar problem.
The tax-filing extension deadline was last week (Oct. 15). If you missed it, we’re not here to make you feel bad about that (though we do urge you to take these deadlines seriously).
What we are here to tell you is what you’ll need to do next. There’s one thing that you hopefully have picked up on from these notes of mine: even if you’re late, it’s possible to get your tax situation back on track and minimize the damage (with the right strategy, of course).
One encouragement to keep in mind – the IRS prioritizes compliance, not punishment. So, taking action will almost always prevent the worst-case scenario. And while there might be some penalties involved with late tax filing, if you take care of them early enough, there will be only minimal damage.
Here’s what you might be up against (depending on your circumstances) if you missed your tax extension deadline:
- Failure-to-File Penalty. The penalty rate is 5 percent of the unpaid tax per month, up to 25 percent (max).
- Failure-to-Pay Penalty. This is charged at 0.5 percent of the unpaid tax per month, up to a maximum of 25 percent.
- Interest on Penalties. This starts accumulating the day after your taxes become due, at 3 percent on top of the short-term rate.
In extreme cases, the IRS may also impose additional penalties for egregious violations related to late tax filing, such as fraud or willful neglect. If that’s what you’re up against, we should absolutely have a conversation so you can prepare for the IRS’s response to that.
In general, with late filing, here are a few things you can do to minimize the damage of missing an IRS deadline:
- Disaster tax relief — check if you have an additional extension. There have been so many natural disasters this past year affecting taxpayers. If you were a victim of one, you likely have been granted a little extra time for late tax filing.
- File your return (quickly). Late tax filing is better than not filing at all. As laid out above, the IRS imposes a 5 percent monthly late filing penalty, which can go up to 25 percent. Additionally, after 60 days, you’ll face a minimum penalty of 485 dollars or 100 percent of the owed tax (whichever is greater).
But the good news is, filing now can prevent additional monthly penalties. Plus, paying part of the amount owed can reduce interest. For example, if you owe 1k, you could face up to 250 dollars in penalties within 5 months. However, by filing today, you can cap that total.
- Figure out your payment plan. If you’re struggling to pay your taxes in full, there are options available. You can set up a payment plan with the IRS to avoid more severe penalties. Or, if your finances are tight, you might consider an installment agreement or apply for a temporary hardship deferment. (We can help you set one up.)
Payment plans can significantly reduce the financial burden. And though they don’t get you out of interest and penalties for making late payments, the failure-to-pay penalty is cut in half when on a payment plan. Translation: You’d have a .25 percent penalty tacked on your bill instead of .5 percent.
- Check to see if you’re due a refund. If you’re owed a refund, there aren’t any financial penalties for not filing. However, if you’re required to file by law, it’s important that you still do so. If you’re not sure about that requirement, just assume you should file — or else you could end up facing a wide range of civil and criminal sanctions. And if the IRS decides to file a return on your behalf without your input, it may not be financially in your favor.
Also, if you’re owed a refund, filing late will delay your payment and any associated tax credits, like the Earned Income Tax Credit. And the biggest warning: Make sure to file within three years to avoid forfeiting your refund altogether.
- See if you qualify for first-time abatement. If you have a history of compliance, the IRS may be willing to waive penalties under their first-time penalty abatement programs. Additionally, if you can demonstrate reasonable cause for the late filing, such as a natural disaster, illness, or other uncontrollable event, you may qualify for penalty relief.
There’s your game plan. It’s not too late to minimize the damage of late tax filing or late payment penalties, so don’t let the missed deadline keep you up at night. Take action now, and you’ll be on your way to being compliant again.
Remember: The sooner you can get to it, the less you’ll have to pay in penalties and fees.
I should probably mention… this is where LEK Management Inc shines, so give us a call. We’ve helped a lot of Westchester County people get their tax standing righted… and we can help you too.
calendly.com/l-karam/prospect-schedule
Here to help you remember those important dates,
Lynn Karam