The deadline for filing your taxes is right around the corner. If you are like me, and have already done your taxes, then there isn’t much to worry about. But what happens if you miss the tax deadline? Here are important steps that you need to take, and some implications if you don’t take those steps.
What happens if I miss the tax deadline?
Missing the tax deadline isn’t the end of the world. Contrary to public belief the IRS isn’t waiting to bust down your door and throw you in cuffs the minute the deadline passes. They understand that life happens, and you may not be able to file on time. With that said, they don’t take kindly to people just ignoring their tax obligations. If you do miss the tax deadline, there are steps you can take to show good faith.
First, file for a tax deadline extension before April 15th (or as soon as possible.) When you do this, it allows you to push back your filing deadline to Oct. 15th, so you can get your taxes in order and get square with the IRS. There are a couple of different ways to for file an extension.
- Filling out the IRS Tax Extension form 4868 that estimates your taxes, and sending it in electronically or by snail mail. If you are past the deadline already, I strongly recommend that you send it in electronically.
- If you are doing your taxes online you can file for an extension through TurboTax here, or H&R Block here.
Second, even though you’ve filled out the form and filed for an extension, you are still obligated to pay any taxes owed by April 15th. Failing to send in the taxes that you owe can cause you to incur penalties and fines. To avoid this, use the estimated taxes from your extension form and get those funds to the IRS as soon as possible. They make it pretty easy by letting you pay via a debit or credit card. Once you do these two things, the IRS is happy to give you an extra 6 months to figure out your taxes.
What happens if I don’t file an extension and ignore my filing my taxes?
Let me just start are by saying that no one avoids the tax man. Not even Al Capone or Wesley Snipes (who just got out of jail for tax evasion). This is when the ugly side of the IRS comes out, and it’s not something you want to experience. They’ll give you a beat down with a mix of penalties, incurred interest, and even jail time! What penalties and interest you ask?
- The “failure to pay” penalty is assessed at .5% a month up to a maximum of 25%
- The “failure to file” penalty is assessed at 5% a month up to a maximum of 25%
- Federal tax lien that is a legal claim to your property, including any property acquired after the lien arises. Just to pile on, that lien is public record and will be picked up by credit agencies. That can drop your credit score by up to 150 points.
- Section 7203 allows criminal penalties for people who knowingly fail to pay their taxes or file a return on time. Taxpayers who are found guilty are charged with a misdemeanor and can be sentenced to prison for up to one year and fined up to $25,000.
This is the tax man that you don’t want to tangle with. Do yourself a favor, and take steps above to file an extension. This way they know you are going to file and pay, but it will miss the deadline.
What happens if I can’t pay my taxes?
If you are honest with the IRS, they are actually not bad to deal with. You still need to file your taxes, and ask for an extension. This will let them know you are having issues and that you are trying to resolve the issue. There are a couple of things that can happen from here.
- Talking with them might allow you to set up a payment plan with a set number of installments that can be spread out over several months (please note that you will still be inuring penalties and fees, so you’ll want to pay it off as soon as possible).
- You can ask for an offer of compromise, which allows you to settle your tax bill for less that what you owed.
- If they feel you can’t pay your taxes, they may delay them altogether.
So what have we learned today? Well, the tax man isn’t the faceless evil entity that is waiting to eat your soul for filing your taxes late. He is willing to work with you and make sure you have as many options as possible to fulfill your tax obligations. However; if you thumb your nose at him, he is not opposed to taking your toys and making you cry.
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