Not filing your taxes on time is certainly not ideal, but it’s definitely not the end of the world. If you’re one of those people who missed the deadline, the most important thing you can do right now is file as soon as possible. The situation will not improve by dragging it out.
Late taxpayers can be on the hook for interest penalties on their unpaid tax bills.
“Interest is based on rates set by the IRS and compounds on a daily basis,” explains Eliot Bassin, a CPA from Connecticut. “When you factor in interest and penalties which could be owed at the state level, these amounts add up quickly.”
“If they cannot afford to pay the amount that’s owed, then they should consider other options, such as setting up an installment agreement,” he adds. “Installment agreements allow amounts that are owed to be paid over time and generally provide for a reduced rate of interest and penalties. This can really help someone that can’t pay everything they owe right now.”
“Set reminders for yourself so that you’re aware of important dates such as tax deadlines,” says Bassin. “I recommend setting up multiple reminders, for example, six weeks out, four weeks out, etc.
“For clients who tend to owe money, we recommend setting up a dedicated tax savings account. Transfer money into the account on a regular basis,” he added. “This prevents the need to move large sums of money near the filing deadline.”
Here is more helpful information to know, and steps to take, if you should ever miss the tax filing deadline:
The first thing you should do is determine whether or not you owe any additional tax amounts. If you do, make a payment as soon as possible. By failing to file, you could be subject to late filing penalties, late payment penalties, and interest on the amounts owed.
Late filing penalties and late payment penalties are 5 percent each per month (or portion thereof), up to a maximum of 25 percent of the tax owed. For both penalties this could add up to 50 percent. When you factor in interest and penalties, which could be owed at the state level, these amounts add up quickly.
Once you’ve done what you can to minimize penalties, contact your preparer so that they can file the late returns. The statute of limitations, the period of time the IRS and states have to examine a return, is generally three years from the date the return was due or the date it is filed, whichever is later.
Filing the return starts the clock. Generally speaking, the sooner the statute expires the better.
To avoid missing a future deadline, I find that our clients do best with a combination of strategies. Use a calendar. It doesn’t matter whether it’s digital or a day planner. This will ensure that the filings or extensions are prepared on a timely basis.
Also, set up a tax folder. As important documents are received throughout the year, add them to the folder. This makes tax time a lot easier since everything is already in one place.