Everyone's least favorite day of the year is right around the corner. Odds are you've been dreading Tax Day for months, but filing your taxes isn't something you want to delay. While dancing with the IRS is enough to send any of us into a spiral of anxiety, it's important to know what happens if you file your taxes late — because the consequences could be much worse than if you had just taken care of them before the deadline.
Firstly, know that the IRS says you should file all tax returns that are due, even if you cannot pay them in full. You can request an extra 60 to 120 days to pay, as well as set up an installment agreement to make smaller payments over time. This is especially important because the penalty for filing taxes late can be 10 times higher than the penalty for paying late. Whatever you do, file!
Don't expect to be left off the hook for filing late just because you're strapped for cash. There are a number of reasons why you shouldn't file your taxes late. Firstly, you risk losing your refund if you're owed one for withholding or estimated taxes. The IRS will hold refunds when their records show that one or more of your returns are past due.
If not getting money you are owed doesn't bother you, how about being charged more money that you might not even have? That's another risk you run when you don't file taxes on time, because interest and penalties can pile up. Penalties, which are determined on a case-by-case basis, apply when you owe taxes and don't file your returns by April 18, 2017. Penalties also apply if you owe taxes and file an extension, but don't do so by Oct. 16, 2017. The penalty amounts to five percent of the taxes owed for every month your return is late, up to 25 percent. If you file more than 60 days after the deadline, you'll be penalized by a minimum of $135 or 100 percent of your unpaid tax, whichever is smaller.
This is the case when you file late. There are also consequences when you pay late. Regardless of whether or not you've filed an extension, taxes paid after the April 18 deadline are considered past due. This penalty is 0.5 percent of what you owe every month, up to 25 percent. Penalties aside, bear in mind, once again, that paying late isn't nearly as bad as filing late.
A third consequence of filing your taxes late is having trouble obtaining a loan. Be aware that copies of your filed tax returns need to be sent to financial institutions, lenders/brokers, etc. Getting a loan can already be such a huge headache, and you probably had to do a lot of work to apply for one in the first place; why chance damaging that?
In general, handling your taxes can be utterly confusing. It can become even more complicated depending on your marital status, type of employment, living situation, and other factors. IRS.gov is an excellent resource if you need more information, and there are many others still. Despite knowing that there are repercussions, millions of Americans fall behind on taxes. Don't be one of them — file before the deadline!