We know it’s tempting, but don’t put off filing your taxes! Taxpayers must stay on top of tax deadlines to avoid possible penalties and interest charges for late filing.
Falling behind on your tax filing obligations can be stressful. It’s better to file taxes early or on time so you can stop worrying about your taxes and move on to other (more fun) activities.
But if you didn’t file your tax return on time this year, it’s not the end of the world. The worst that can happen in the short term is that you could now owe penalties and interest to the IRS — and even those may not be as bad as you think. In fact, there may be no penalty for filers at all in some cases.
If you didn’t file your return on time this tax year, here’s what you need to do.
If you didn’t file an automatic extension
If you didn’t file an extension, don’t assume it doesn’t matter how long you wait to file now that you’ve missed the deadline.
If you owe tax with your return, you will owe a hefty late filing penalty totaling 5 percent of your unpaid taxes for every month, or partial month your return is late, up to a maximum penalty of 25 percent. Note that the late filing penalty is much higher than the late payment penalty (which we’ll discuss in the next section).
You need to file an automatic extension by Tax Day in April. There is one exception for U.S. citizens and resident aliens who are out of the country on the April tax filing deadline — if you’re in this situation, you have two extra months to file a tax return and pay taxes due.
It may be tempting to ignore your tax return and contemplate not filing at all as time goes by. After all, you may think that if you don’t file a federal tax return, the IRS won’t know it was filed late.
But that’s not a good idea.
If your employer or anyone else filed an informational return for you, such as Form W-2, the IRS will know you should have filed a return. The IRS system may take a while to match your informational return to your lack of a return, but it will happen eventually. When it does, you’ll get a letter in the mail, possibly with a tax bill including interest and penalties. Save yourself the stress!
Plus, you don’t want to miss out on a potential tax refund. If you’re owed a refund, you have up to three years to file a return and claim your money. If you don’t claim your money by year three, the government gets to keep it forever.
There is no penalty for filing a tax return late when you have a refund or no balance due, so don’t miss out on that extra cash just because you missed the tax deadline.
If you filed a tax extension
If you filed for an extension with the IRS before the April tax due date, you have extra time now to finish up your return.
Unfortunately, this doesn’t mean you have extra time to pay your tax bill.
Even with an extension, you could owe a failure-to-pay penalty, which amounts to 0.5 percent of your unpaid taxes for every month or partial month your tax bill is overdue, up to a maximum of 25 percent.
But here’s the catch — how do you know how much tax you owe if you haven’t completed your return yet?
To help estimate your potential tax liability, it’s a good idea to complete your return as much as you can, using estimations as necessary. If you e-file, you’ll be able to save your return and go back to update it as needed. As you receive more tax forms or information, you can replace any estimated numbers with actual numbers.
If you determine you will have tax due, pay as much of your approximate bill as possible, even if you can’t finish your return. That way, you save on interest and penalties for underpayment of tax on the full amount due. If you can’t afford a tax payment for the total amount, you can also set up an installment agreement payment plan with the IRS.
Even if you think you’ll get a tax refund instead of owing money, it’s still a good idea to complete your return as soon as possible. Don’t let the six-month extension tempt you to put all your tax files away, only to get them out later. It will no doubt be harder to remember your tax details come October.
If you have a complex income tax return, it may never feel like it’s really done. There’s always the hope of one more receipt or something else you’ll discover to lower your tax bill. But, at some point, you have to file. And remember, if you discover something else later, you can always file an amended return.
Filing state income tax extensions
If you live in a state that charges income tax, don’t forget to file an extension for your state taxes as well! In most cases, much like your federal taxes, a state extension gives you more time to file, not more time to pay.
Some states will grant you an automatic six-month extension if you’ve filed for a federal tax extension, but not always. Reference this list to check your state’s rules and view any necessary tax forms you might need.