The deadline for filing taxes on all income earned in 2018 this year was on April 15th. Missing the deadline can be agonizing for anyone, most especially if you owe the IRS. So what exactly should you do in such a stressful situation? This article offers a step by step guidance in the happening of such an event, as well as highlighting the consequences of a missed deadline.
What will happen now that you have missed the deadline?
If you are due for a refund
You can relax as there is no penalty whatsoever for missing the deadline. However, you should still file as soon as you can to get the refund sooner. Remember, the longer you take to file, the longer it will take for you to get the refund.
Waiting too long to file your returns may result in the IRS filing a substitute return for you. The substitute return may not include your deductions, and you will end up owing tax instead of being owed a refund.
According to the liability clause, you have up to three years from the tax deadline to file for your returns, after which the IRS will direct the refund to the United States Treasury.
If you owe taxes
In case you owe some taxes and fail to file by the deadline, you are likely to incur one or some penalties. Here are some of the penalties you can expect:
- Failure to file penalty. This is 5% of your tax bill per month or partial month and can reach as far as 25%.
- Failure to pay penalty. This is 0.5%of your tax bill per month or partial month and can also reach as far as 25%.
- Interest charged by the IRS on the unpaid due tax. This increases the longer you take to clear up the balance.
Here is what you need to do
1. File your returns anyway
As seen above, the penalty for failure to file is about ten times greater than the penalty for a failure to pay. This little penalty, though painful too, is much better. An unpaid tax bill may lead to a damaged credit score and even criminal prosecution. It is, therefore, best to file even if you are unable to pay.
2. Set out a repayment plan
If you are not able to come up with the wholesome amount right away, you might need to devise a plan to make the payments. You can pay a visit to the IRS and negotiate for a short term or long term payment plan depending on your unique situation. An Offer in Compromise is an ideal option if you are totally unable to clear off the full tax liability or if in doing so you will be setting yourself up for financial strain.
3. Consult a Tax Attorney
This entire situation is undeniably tiresome and it is best advised to employ the services of a professional such as a tax attorney. They are well versed with such cases and will be able to work with you and the IRS to come up with an amicable agreement. For free, no-obligation advice from our excellent team of lawyers, contact Ayar Law today for any questions or concerns you may have about your taxes.