The saying goes that there are only two things that are sure in life, death and taxes. I think you can add one more thing to that list. You can be sure that you don't want to mess around with the IRS and not file or pay your taxes. Just look at a long list of celebrities, musicians and others that neglected to pay their taxes. They either ended up in jail, bankrupt, or being hounded by the IRS for their outstanding debts.
Personally I've never not filed my taxes as I'm too scared to find out what the consequences might be, and I suggest that you not try to get away with it either. But in case you end up in a situation where you've missed the deadline, or you found yourself without enough money to pay, here's what you can do. (Also, here's what penalties and fees you can expect to be assessed if you don't follow the letter of the law.)
What Should I Do If I Miss The Filing Deadline?
If you've already missed the April tax filing deadline, the first thing you should do is get on the ball and file your taxes as soon as possible! Get everything together in one place, get a software that will allow you to file electronically (time is of the essence), and file and pay your taxes electronically immediately.
If for some reason you know you won't be able to file your taxes before the deadline, you should immediately file for an extension, before the deadline – or it will already be too late!
File A Tax Deadline Extension
All taxpayers can file for an extension of the deadline to file their taxes. This should be pretty much automatic and will give you until October 15th to file your tax paperwork.
There is a caveat, however. If you owe the IRS money, even if you file for and receive an extension, you still have to pay what you owe on the April tax filing deadline! So at the very least you will need to get together an estimate of your taxes owed and send that payment in to avoid penalties.
Here are some ways you can file an extension, and further details from the IRS
- H & R Block
- ESmart Tax
- Details About Filing An Extension
- Tax Form 4868 To File An Extension fill this IRS form out and mail it in.
Penalties When You Don't File Or Pay Your Tax Return
So let's say that you've missed the tax filing deadline and you haven't filed for an extension. You've just decided to roll the dice and see what happens. There will be a tax penalty to pay my friend.
There are two types of penalties that you'll have to pay, one for not filing, and one for not paying. From this point on we'll call these a Failure To File (FTF) penalty and a Failure To Pay (FTP) penalty.
- Failure to file (FTF) penalty: The FTF penalty is assessed at 5% per month or partial month up to a 25% maximum.
- Failure to pay (FTP) penalty: The FTP penalty is assessed at 0.5% per month or partial month up to a 25% maximum.
- If both the FTF and FTP penalties are assessed, the FTF penalty is reduced by the FTP penalty. (so you'd pay FTF-FTP+FTP)
Here's an example. Let's say a taxpayer files their taxes 32 days late, and along with the tax filing they send along a check with the $4000 taxes owed. Their penalties owed would be 5% of $4000 ($200) for their FTF penalty, along with a .5% FTP penalty of $20. That means their total penalties owed would be $200. ($200(FTF) -20 (FTP) = $180(FTF)+20(FTP) = $200)
What If You Can't Pay Your Taxes?
Ok, so you've filed your taxes, but due to circumstances you just can't pay them at the current time. What are you options if you can't pay your taxes?
- Extension of time to pay: You can ask the IRS to give you an extension from 30 to 120 days. You will still be assessed penalties and interest.
- Installment agreement: You can ask the IRS for a payment plan or installment agreement that will allow you to pay your taxes in monthly payments.
- Use Savings Or Take Out A Loan: You can take out a loan with a peer to peer lending company like Lending Club or with your local bank, and pay your tax bill. If you have savings dip into it. You're better off owing a bank, than the IRS.
- Offer in compromise: An offer in compromise is an agreement with the IRS to settle your tax debt for less than you owe them. Usually they will only allow this if they think you won't be able to pay.
For more details about your options listed above check out this article on what to do if you can't pay your taxes.
Have you ever been late in filing your taxes, or in paying your tax bill? Have you ever come close to missing the deadline, and file an extension just in time? Tell us your tax filing stories in the comments.