Introduction
It’s that time of the year again: tax season. Filing taxes is a crucial obligation that all taxpayers must complete. However, not everyone files on time, and they may not know the penalties and consequences that come with late filing. In this article, we’ll explore what happens if you file taxes late, the penalties and interest charges that come with late filings, and how to avoid those consequences.
Reasons why people file taxes late and how to avoid them
People have various reasons for filing taxes late. Some may not have the necessary forms, while others may not have the funds to pay taxes owed. One of the most common reasons for late tax filing is procrastination. That is why it’s essential to know how to avoid late filing.
Tips for avoiding late tax filing include keeping track of all important tax deadlines, being proactive about gathering necessary forms and documents, and setting aside funds to pay taxes owed.
The penalties and interest charges for late tax filing and payment
If you file your taxes after the due date, you may face penalties and interest charges. The penalty for filing late is usually 5% of the unpaid taxes per month, up to a maximum of 25%. If you also file your taxes late, you could face another penalty of 5% of the unpaid taxes per month as well, up to a maximum of 25%.
Interest charges on late payment of taxes also accrue. The interest rate is determined quarterly and is usually the federal short-term rate plus 3%.
For example, if you owe $5,000 in taxes and file three months late, the penalty and interest charges would be $750 (5% x $5,000 x 3) + ($150 x 3 months) = $1,050.
The difference between filing a tax extension and being late
If you know you cannot file your taxes before the deadline, you can request a tax extension. A tax extension gives you more time to file your taxes, but it does not give you more time to pay any taxes owed.
One of the biggest differences between filing an extension and filing late is that with an extension request, you are still on-time and don’t incur a late-filing penalty as long as you file by the extended deadline, which is usually October 15th. But if you don’t file by then, you will incur the late filing penalty of 5% per month up to a maximum of 25%.
How to file taxes late and minimize penalties: tips and tricks
If you do end up filing your taxes late, there are ways to minimize the penalties and interest charges. One option is to request a payment plan from the IRS. A payment plan allows you to pay off your taxes owed in monthly installments. This can help reduce penalties and interest charges, but you will still have to pay a fee for setting up the plan.
You can also negotiate with the IRS to reduce or eliminate penalties, especially if the late filing was due to a significant life event such as illness, natural disaster, or legal problems.
What happens if you don’t owe any taxes and file late?
If you don’t owe any taxes and file late, you will not face any penalties. In fact, you may still be eligible for a refund. However, if you don’t claim your refund within three years of the original filing date, the refund will expire.
The effects of late tax filing on your credit score and future borrowing
When you file your taxes late and owe taxes, this can negatively affect your credit score and future borrowing. The IRS can file a federal tax lien against you, which stays on your credit report for up to ten years. This can affect your ability to get approved for loans, credit cards, and even a mortgage. Late payments can have a similar effect.
How to resolve late tax filing issues with the IRS
If you have late tax filing issues with the IRS, you can resolve them by contacting the agency and discussing your situation. You may be able to negotiate payments, work out a payment plan or submit an offer-in-compromise.
The IRS also offers hired help, such as tax advocates, tax clinics, and low-income taxpayer clinics, to assist taxpayers in resolving their late tax filing issues.
Conclusion
Filing your taxes on time is essential to avoid penalties and interest charges. If you cannot file your taxes on time, it’s best to file for an extension. But if you end up filing your taxes late, there are ways to minimize the negative impact on your finances. The consequences of late filing can affect your credit score and future borrowing, so it’s essential to ensure that you file your taxes on time or take steps to resolve late filing issues.
To avoid any headaches in the future, make sure you stay organized during tax season, understand your tax obligations, and keep track of all important deadlines.
