It’s important to stay on top of the tax deadlines to avoid possible penalties and interest charges for late filing and payment of taxes. Getting behind on tax filing obligations can be stressful, too. It’s better to file early or on time, so you can stop worrying about your taxes and move on to other things.
That said, if you didn’t file your tax return on time this year, the sky will not fall. The worst that can happen in the short term is that you could now owe penalties and interest – and even those may not be as bad as you think. In some cases, there may be no penalty at all.
If you didn’t file your tax return on time this year, here’s what you need to do.
If you didn’t file an automatic extension
If you didn’t get an extension, don’t assume now that you’ve missed the deadline it doesn’t matter how long you wait to file. If you owe tax with your return, you will owe a hefty late filing penalty of 5 percent of additional taxes owed for every month or partial month your return is late, up to a maximum penalty of 25 percent. Note that the late filing penalty is much higher than the late payment penalty.
You can’t file for an automatic extension after the April deadline. (Although U.S. citizens and resident aliens who are out of the country on the April filing date have two extra months to file a tax return and pay taxes due.)
It may be tempting, as time goes by, to ignore your tax return and not file at all. After all, you may think that if you don’t file a return, the IRS won’t know it was filed late. But that’s not a good idea.
For one thing, you know you should have filed, and you’ll stress about it. If your employer or anyone else filed an informational return for you, such as Form W-2, the IRS also probably knows you should have filed a return. It may take a while for the IRS computers to match your informational return to your lack of a return, but eventually, they will. You’ll then get a letter in the mail, possibly with a tax bill including interest and penalties.
Another reason you should file your return is that you may get better news than you think. You could have a refund coming – in which case you have up to three years to file a return and claim your money. If you don’t claim your money by year three, the government gets to keep it forever. There is no penalty for filing a tax return late when you have a refund or no balance due.
If filed a tax extension
If you filed for an extension before the due date, you have extra time now to finish up. You don’t have extra time to pay any tax due, however. Even with an extension, if you eventually owe money with your return, you could owe a penalty for late payment of tax of 0.5 percent of the additional tax owed for every month or partial month the tax is unpaid, up to a maximum of 25 percent. The catch is, how do you know how much tax you owe if you haven’t completed your return?
That’s why, even if you filed for an extension, you might as well keep gathering information and finish your return. Do as much as you can, and estimate as necessary. As you find more information, replace the estimates with actual numbers. If you determine you will owe more money, pay as much as you can, even if you can’t finish your return. That way you save on interest and penalties for underpayment of tax on the entire amount.
If you think you’re getting a refund, it’s still a good idea to keep working on your return until it’s done. For one thing, that’s your money, and you could put it to better use, such as paying down high-interest consumer debt. For another thing, preparing your taxes doesn’t get any easier as you get farther away from the year in question. Don’t let the six-month extension tempt you to put all your tax files away, only to get them out later. It will be harder to remember tax details come October.
If you have a complex income tax return, it may never feel like it’s really done. There’s always the hope of one more receipt or something else you’ll discover to lower your tax bill. But, at some point, you have to file. If you discover something else later, you can always file an amended return.
Source : TaxAct Blog