Don't File Your Taxes Late Before You Read This
Crunch time is here for taxpayers, and the impending April 18 deadline for getting your 2016 returns filed might seem increasingly difficult to meet. But that doesn't mean you should just give up and not do anything at all. With serious consequences if you don't file, alternatives can help you avoid pitfalls and still give you the extra time you need to get your returns prepared.
Big penalties for not filing -- sometimes
The IRS discourages taxpayers from choosing not to file their tax returns on time. A potentially huge penalty of 5% for every month or part of a month that your returns are late can add up quickly, with the maximum penalty topping out at 25% if you don't get your act together by late August. A minimum penalty of $205 applies if 60 days goes by without filing, file their returns late, and the penalties that it imposes on late filers makes it clear that it's serious about enforcing its deadlines. For every month or portion of a month that your return is late, the IRS charges a penalty equal to 5% of your outstanding taxes owed. The maximum late-filing penalty is 25% of your unpaid taxes, which you'll hit after four months and a day. However, the IRS imposes a minimum penalty of $205 if you're more than 60 days late in filing, or the amount of your unpaid tax if it's less.
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Interestingly, what that means is that if you don't owe any tax, then there's no penalty for filing late. That makes sense to a degree, as the IRS is in no hurry to return money to taxpayers. Nevertheless, the lack of penalties shouldn't deter you from taking steps to let the IRS know that you're aware of your tardiness and are working hard to get back on track.
In addition, there are some circumstances in which you won't owe a penalty. The most common comes from those who live in areas that have been hit by catastrophic events like natural disasters, in which the IRS typically offers additional time to file.
The simple step to avoid late-filing penalties
The easiest way to get yourself out of a potential late-filing penalty situation is to request an extension. Any taxpayer can ask for and automatically get a six-month extension to file, and that gives you until mid-October to get your act together and file your returns. All it takes to request an extension is a one-page form.
One thing to note is that an extension to file doesn't excuse you from actually paying your taxes when they're due in mid-April. The thing is, though, that the penalties are much lower if you can't pay on time than they are for not filing. Late payment penalties are currently just 0.5% for each month or part of a month that you're late in getting your taxes paid. In other words, you can cut your penalty by 90% if you just file for that extension even if you can't pay right away.
Don't try to fly under the radar
Finally, it's important to avoid the temptation of thinking that you can avoid IRS scrutiny by not filing a tax return. Even if you don't file a return, the IRS knows about you, because your employer and any financial institutions with which you do business have already filed tax information that relates to you. If the IRS doesn't get a return that reflects those numbers, then red flags will appear -- and you can expect to get a nasty response from the tax man when you choose to ignore your responsibility to get your taxes filed and paid.
April is a stressful time for taxpayers, but if you're not sure you'll get your taxes filed on time, go ahead and request an automatic extension right now. Otherwise, you'll pay completely unnecessary penalties that will make tax time even more difficult than it already is.
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