Did You Miss the Tax Deadline? Here's What to Do Now
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The April 18 tax deadline has come and gone, so hopefully everyone got their returns completed and filed on time. However, things happen, and some of you may have missed the deadline for one reason or another. If you haven't been granted an extension and still haven't filed your tax return, here's what you need to know about the next steps to take.
If you're owed a refund, relaxAs you may imagine, the IRS isn't in a big hurry to give you money. Therefore, if you're owed a refund, there's no need to worry.
If you are due a refund, you actually have three years from the tax deadline to claim it. This means that as long as you file by April 18, 2019, you can still receive your tax refund, and you won't be subject to any late filing penalties. If you don't file within three years, the U.S. Treasury simply keeps your refund as a "donation."
Can't pay? File anywayThe IRS assesses two types of penalties against tardy taxpayers: late payment and failure to file. And the latter is much worse.
If you simply owe the IRS money, you'll pay interest on the outstanding balance. The rate can fluctuate over time, and it's currently 3% per year. You'll also face a late payment penalty of 0.5% of your outstanding balance for each month your payment is late, up to a maximum of 25%. On the other hand, the failure-to-file penalty is much more severe -- 5% of the outstanding balance for each month or partial month you're late, up to the same 25% maximum.
For example, let's say you owe the IRS $5,000 this year. If you file your return but don't pay the tax for three months, you'll owe a late payment penalty of $75. However, if you don't file at all until you pay the balance three months later, then your late filing penalty will be $750 -- 10 times the amount you would owe if you filed but did not pay. And keep in mind these penalties are in addition to the interest that would accumulate.
If you haven't filed your tax return yet, do so as soon as you can to prevent the late filing penalties from accumulating any more than they already have. IRS Free File is still available to taxpayers who qualify, so it may not even cost you a dime to do it.
Finally, it's important to mention that if you had a good reason for not paying your tax or filing your tax return on time, the IRS could potentially waive any penalties (but not the interest). For instance, if you were in the hospital for the entire month of April and were incapacitated, the IRS will probably understand. If you think you may have a valid reason, attach a statement to your return explaining your situation.
You have options if you can't payIf you can't pay your taxes due, the first thing you should do is apply for an installment agreement with the IRS. If you owe $50,000 or less ($25,000 if you're filing a business return), you can apply for an installment agreement online, and if you don't qualify for an online agreement, you can still apply by mail or over the phone.
If paying your tax burden would cause you undue hardship or you have insufficient income and assets to pay the amount due, then you can apply for an Offer in Compromise, which is a request to settle your unpaid taxes for less than you owe. Or you can ask the IRS to temporarily stop collection efforts.
The point is that there are options in place if you can't pay your tax debt, and you can explore them on the IRS'website to decide which is best for you to pursue.
What about an extension? Doesn't that buy me six months to file?Unfortunately, that ship has sailed -- for most people, anyway. A tax extension waives the failure-to-file penalties for six months, and it's useful if you're waiting on documentation or simply haven't had time to complete your return yet. However, the deadline for an extension isn't flexible.
If you were living in the United States on April 18, then that was the deadline to file or mail an extension request. The only people who can file an extension after this date are U.S. citizens and resident aliens who were out of the country on April 18 and active-duty members of the military who were serving outside of the U.S. on Tax Day.
Don't make the situation worseAs with most problems, the worst thing you can do if you haven't filed your tax return yet or can't pay the balance you owe is to ignore it. If you still don't file a return or pay your taxes after a long period of time (depends on the situation), the IRS' collection process can do serious damage to your financial well-being by putting a tax lien on your property or even seizing and selling your assets.
Having said that, despite their reputation, the IRS is actually pretty good at working with people who are having a tough time. So file your return (even if you can't pay), pay what you can, or look into one of the other options such as a payment plan.
The article Did You Miss the Tax Deadline? Here's What to Do Now originally appeared on Fool.com.
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