You missed Tax Day—for the last two years. There are various reasons people miss the deadline for filing taxes. Medical emergencies, family crises, unexpected business trips, or missing tax information are valid reasons to accidentally miss the tax deadline. Ideally, filing an extension if you’re going to be late filing taxes is the way to go, but that isn’t always possible.
Whether you accidentally missed the tax deadline or purposely chose not to file, there are ramifications to having unfiled taxes. When you miss the tax deadline, you could face penalties.Before entering panic mode, wondering if the IRS is coming for you in Phoenix, take a breath and call in reinforcements.
What Is the Next Step?
If you’ve missed the tax deadline and have unfiled taxes, your first step is to finish your tax return and submit it. The faster you get it filed, the fewer penalties you will likely incur. You particularly need to get the forms filed if you owe the IRS money. You might face two different penalties if you didn’t file and owe money.
Those who missed the filing deadline still have an opportunity to file returns electronically. The e-filing options are available through October 17, 2022. It’s a wise decision to get returns filed as quickly as possible to help mitigate some of the penalties that have begun to accrue.
Fees and Penalties
You could face a failure-to-file penalty when you have neglected to file your taxes. Worse, if you owe money, you are looking at the possibility of a failure-to-pay penalty. The monetary ramifications don’t stop there. In addition to penalties, there is interest on top of the amount of the debt.
The failure-to-file penalty is usually 5% of your debt each month or partial month that you are late filing. The maximum penalty is 25% unless your tax return is more than 60 days late. In that case, there is a minimum penalty of $435 or the amount of taxes you owe if that number is less than the $435.
The failure-to-pay penalty also adds money to your tax debt, but it doesn’t add as large a percentage to the bill as the failure-to-file penalty. That’s why it’s recommended that you file an extension if you need more time to finish your returns. The extension should be filed even if you can’t afford to pay anything at the time. Filing an extension will help you avoid the more expensive failure-to-file penalty.
Exactly how much is the failure-to-pay penalty? It’s typically 0.5% of the taxes owed but not paid by the filing deadline. This penalty is also charged each month or partial month that your payment is late. The maximum penalty is currently 25% of the amount owed.
Unfortunately, the penalties aren’t the only monetary hit you’ll take when filing your returns late. The IRS also charges interest on any amount of money you owe. The interest rate is calculated by adding 3% to the current short-term federal interest rate. That calculation makes the current interest rate 4%, with the rate adjusted every quarter and interest compounded daily.
What If You Can’t Pay Your Tax Bill?
Don’t panic yet. You may have options if you can’t pay your tax bill. The IRS will sometimes set up a long-term payment plan called an installment agreement. To qualify for this option, you can’t owe more than $50,000, including all penalties and interest on top of your tax debt.
When to Get Help
If you haven’t filed your taxes for multiple years or have questions regarding your rights or options, it’s a good idea to contact a professional tax attorney. In the Phoenix area, Guardian Tax Law can help you understand your next steps.