If you don’t file your taxes on time, you will be liable to pay penalties in addition to the taxes you owe. This statement may appear simple, but the nature of those penalties and what to do next depends on your situation..
So, you didn’t (or know you won’t be able to) file your taxes on time. What’s next?
Below, we cover the 3 most common scenarios.
- Scenario 1: You cannot file your tax return on time
- Scenario 2: You missed the deadline and did not file for an extension
- Scenario 3: You cannot afford to pay your taxes
Of course, every case is specific. Don’t hesitate to speak with a CPA, even if the deadline has already passed.
Scenario 1: You Cannot File Your Tax Return on Time
If you find yourself unable to file a federal tax return by the tax deadline, you’ll need to file an extension with the IRS before the deadline, so that you can avoid monetary penalties.
Step 1: File for an Extension Before the Deadline
There are two ways to file for an extension. You can file for an extension online or you can simply fill out Form-4869 and mail it to the IRS.
Also Read: What to Do After Filing an Income Tax Extension?
E-file Your Extension Form for Free
Individuals can file for an extension online within a few minutes through the official website of the IRS called Free File.
Download the extension form, fill in all required fields, and send a copy to the IRS through Free File before the due date.
Print and Mail
If you want to submit a hard copy then you can print Form-4868, fill in all the necessary details, and mail it to the IRS.
It’s ideal that the form reaches the IRS before the deadline (usually April 18th) to avoid any penalties. However, if it’s late, that’s okay!
Step 2: Pay Your Estimated Tax Before the Actual Deadline
Even if you have filed for an extension, you still need to calculate the accurate amount of your estimated tax and pay it before the deadline.
You can determine your tax liability by:
- Using the estimated tax spreadsheet found in Form 1040-ES instructions. You should enter your estimated taxes or remaining balance on your extension form (Line 13c of Form 4868). Note: this only applies to self employed individuals
- Fill out your return using the precise numbers you have and estimate numbers for the ones you don’t. Before filing your return, make sure to replace all of your estimations with actual numbers.
- Asking your CPA what you are estimated to owe
Your employment status, paperwork, and any payments made throughout the year will impact this amount.
Step 3: Claim the Refund After Filing your Tax Return
You’ll get a refund for any taxes you overpaid when you file your return at a later date.
However, If you calculated a wrong estimated tax amount and underpaid taxes then interest and penalties will be applied to the unpaid balance.
Scenario 2: You Missed the Deadline and Did Not File for an Extension
If you missed the deadline to pay your taxes and did not even file for an extension then you will be liable to pay the IRS penalties on unpaid amounts of taxes.
You might not have to pay the penalty if you can show a reasonable cause for your failure to pay on time.
Step 1: Calculate Your Late Filing & Late Payment Penalties
The IRS has explicitly mentioned the penalties for not filing on time which are mentioned below:
Late Filing
If you miss the deadline to file your due taxes, the penalties for not filing on time are increased by 5% every month on the unpaid amount.
The IRS won’t levy a penalty of more than 25% of your unpaid taxes.
For instance, if you’re liable to pay a $3000 tax. You can calculate the per-month penalty with the following calculation: $3,000 x 5% = $150
Moreover, the total possible late payment penalty will be as follows: $3,000 x 25% = $750
Late Payment Penalties
If you miss the deadline to pay on time then the penalty on the unpaid amount is increased by 0.5% every month on the unpaid amount.
The IRS won’t levy a penalty of more than 25% of your unpaid taxes.
For instance, if you’re liable to pay a $3000 tax. You can calculate the per-month penalty with the following calculation: $3,000 x 0.5% = $15
Moreover, the total possible late payment penalty will be as follows: $3,000 x 25% = $750
Also Read: IRS Late Filing Penalty vs. Late Payment Penalty
Step 2: Reduce the Penalties by Paying Immediately
Once you owe a penalty to pay to the IRS, it increases by 5% every month. The earlier you pay your taxes, the more you save yourself from the extra penalties.
Step 3: Get Help from a CPA
If you have a situation where you cannot pay your penalties on time, it’s always best to consult a CPA. Because a CPA will be accurately schooled on the regulations and steps to take to get your taxes taken care of, this is the most efficient way. It also ensures you don’t pay more than you have to, and can help you avoid costly mistakes and legal errors.
Scenario 3: You Cannot Afford to Pay Your Taxes:
If you cannot afford to pay your taxes on time, sitting idle is not the solution as it only increases your tax burden with additional penalties.
You must fill out the extension form to avoid penalties anyway.
Step 1: Set up a Payment Plan with the IRS
You can pay the amount you owe to the IRS in multiple installments. However, in most cases, you will still be liable to be the interest imposed on the unpaid amount.
If you don’t have the funds to pay early then you can opt for the IRS payment plans. You can send Form 9645 along with the extension Form 4868 to opt for a monthly payment plan.
You can either mail these forms to the IRS or send them online.
Step 2: Get Help From a CPA to Note Possible Tax Deductions & Credits
The IRS has many programs (tax deductions, tax credits) that can lower your tax burden. For example, if you run a business and you incurred a huge loss, you may claim tax deductions by filing all the required forms by the IRS.
It is important to note that falsely claiming tax deductions may result in extra penalties as well, so it’s critical to speak with a CPA and understand what the best approach is not only for your current year’s taxes, but also for better tax planning in the future to avoid a repeat scenario.
More Help
Below we offer more information, including what to do after you file and extension, differences between late filing and late payment penalties, and, of course, how to avoid a late filing.
What to Do After You File an Extension
It might seem like kicking the can down the road to file an income tax extension, but that’s not the case. There are several further steps you must take to get back on track if you’re unable to file on time and need to take action. If you have filed an extension, and aren’t sure what to do next, read What to Do After Filing an Income Tax Extension?
Differences Between Late Filing Penalty and Late Payment Penalty
It’s typical and easy to get confused about the difference between a late filing fee and a late payment fee. They are not the same thing, and you may be subject to one, both, or neither, depending on your scenario. If you’re looking for more information, read IRS Late Filing Fee vs. Late Payment Fee.
How Can you Avoid Filing Late Filing?
One of the best ways to avoid a late filing fee is to hire a reliable CPA who has years of expertise while dealing with such situations to avoid late filing in the future. This saves time, avoids late filing and payment penalties, and you may see a higher refund with more tax credits and deductions as well.
If you self file, stay alert on your tax due dates and deadlines! We share these deadlines every year and include upcoming deadlines in our monthly newsletter (along with helpful blogs and announcements from the IRS). Subscribe below.
We regularly send out monthly deadlines and popular announcements by the IRS, so consider subscribing to our newsletter.
Get Tax Deadlines and Updates
