Tax season has a tendency to sneak up on people, and the process of filing taxes can be incredibly time-consuming. With that in mind, it’s easy to see how you could fall behind on your taxes. But that’s something you don’t want to do—failure to file or pay your taxes on time can result in fines and, at the most extreme level, prison time. When it comes to being late on your taxes, time is literally money.
How much can I be charged for filing my taxes late?
The penalty for late filing is up to 5% for each month in which you fail to file. It goes without saying that the longer you wait to file, the more your fines will increase. There’s no statute of limitations, so the IRS can just keep collecting interest from you indefinitely until you file.
When does the late penalty kick in?
Obviously, it’s better to be one day late than three months late, but unfortunately you only have to be one day late to incur the penalty. However, you won’t face the minimum $205 penalty until you hit 60 days.
Can I get an extension?
If you can’t file on time, you can always apply for a tax extension using Form 4868. This gives you a six-month extension, meaning you don’t need to file your taxes until October. There is a catch, though: this only gives you more time to file your tax return. You still need to pay by the normal tax deadline to avoid incurring late fees.
If you need an extension to pay, you can submit Form 1127, but you must do this on or before the filing deadline, and meet other requirements as well. For one thing, at the end of the month, you’ll need to submit a comprehensive statement listing all your assets and liabilities, plus an itemized list of money you received and spent for the previous three months. You must also prove that paying the tax by the deadline would cause you undue financial hardship and loss, and that you aren’t capable of borrowing the money or selling property to gain it.
What if I don’t owe anything?
If you don’t owe anything, then you won’t be penalized for filing late. But it’s still in your best interests to file on time so you can receive your tax refund sooner. If you still haven’t filed your tax return three years after it was due, your refund money gets turned over to the U.S. Treasury.
What if I don’t file my taxes at all?
If you owe taxes to the IRS and don’t file or don’t pay, you could be penalized for failure to file and failure to pay, both of which can result in you being charged penalty fees and interest up to 5% per month. If you don’t file at all, you could eventually be convicted of tax evasion, which is a serious crime that could earn you a $250,000 fine and five years in prison. Needless to say, it’s better to just pay your taxes.
What if I can’t pay on time?
If you have to, it’s better to file on time and pay late, rather than wait to file until you have the money. This is because you can face fees for not filing and not paying. If you file on time, you’re at least halfway there and won’t incur the penalty for filing late, which is much more severe than the penalty for filing late (0.5% vs. 5% per month).
If you absolutely can’t pay, and if you can’t get the payment extension, here are a few other options.
- Pay by credit card
This isn’t ideal, of course, but it’s much better than incurring the possible penalties of not paying, and much simpler than the other options on this list.
- Try to get an Offer in Compromise (OIC)
If you’ll never be able to pay your tax debt, the IRS may allow you to make an Offer in Compromise, meaning you come up with a new balance that you can pay and the IRS agrees. The rest of your balance is then forgiven. Filing an OIC is complicated though, and you have to meet certain requirements. You can apply via Form 656-B.
- Request an Installment Agreement
You can apply for this via Form 9465. If approved, you’ll pay off your tax debt through a monthly payment plan. Again, you’ll need to meet certain qualifications, and you can only apply if you’ve filed your current tax return.
- File for bankruptcy
Obviously, this is a last resort option, but it is an option. It’s important to speak to a tax professional before taking this drastic measure.
At the end of the day, it’s just best to file and pay your taxes on time. Of course, life happens, and there may be times when circumstances outside your control prevent you from paying. In that case, you should always file anyway, then weigh your remaining options.