Filing taxes is an annual obligation that both people and corporations must do. However, the unpredictability of life might cause delays in fulfilling this critical deadline. Being late in paying taxes can kick off a chain reaction of events, leaving people wondering what the consequences will be. The implications of missing the tax filing deadline can be far-reaching and dramatic, ranging from cash penalties to administrative complexity.
In this article, we look at the many consequences of filing taxes late. We untangle the complexities of late submissions, offering light on the fines levied by tax authorities and the financial hardship that results.
What Happens If You Are Late To File Taxes?
Filing late taxes can have various consequences, depending on whether it is due to an oversight, unanticipated circumstances, or procrastination. Here’s a primer on what happens if you don’t file your taxes on time.
1. Penalties For Late Filing
The main consequence of failing to file taxes on time is the imposition of fines. The penalty for late filing is usually computed depending on the amount owed and the length of the delay. You may suffer the harm of unpaid taxes of 5% for every month your return is late. This penalty might amount to up to 25% of your overdue taxes.
There is no penalty for submitting late if you are due a refund. However, you must claim your refund within three years of the initial filing date, or you may lose the right to it.
2. Interest Fees
In addition to penalties, the IRS imposes interest on any unpaid taxes. The interest accrues from the original filing deadline until the outstanding debt is paid. This variable interest rate is determined quarterly based on the federal short-term rate plus 3% points. As a result, the longer you wait to pay your taxes, the more interest you will accrue.
3. Refunds And Credits May Be Lost
Late filing can also result in the loss of certain tax benefits, credits, and refunds. Some tax credits and deductions have a time limit and must be claimed within the fiscal year. The Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) have clear rules about who can get them and when. You can get some credits and benefits if you file your taxes on time.
4. Legal Implications
The IRS may take legal action in extreme circumstances of protracted delay or recurrent failure to file taxes. This includes tax liens, levies on your property, and wage garnishment. Ignoring your tax obligations might seriously impact your financial stability and creditworthiness.
How To Avoid A Penalty For Failure To File?
A tax extension can give you extra 6 months to finalize your tax return, but you must have applied for one by the April tax deadline.
If you received an extension, remember that it only offers you extra time to file your tax return. It does not extend the period you have to pay your taxes. According to the agency, you were still supposed to estimate your tax bill and make an estimated payment by tax day. Otherwise, any money owed after the tax deadline may be subject to a late-payment penalty and interest.
Keep an eye on the calendar for your extension date, though, since if you miss it, the failure-to-file penalty may come back to bother you.
What If I’m Still Unable To Pay My Taxes?
While it is generally in your best advantage to pay as soon as possible, there are times when you simply cannot. If you cannot pay in full, here are a few options.
1. Payment Plans For The Near Future
You will have 180 days to pay in full if you are eligible. Selecting this payment option is free; however, interest and penalties may accrue until your taxes are paid in full. You can apply online if you owe less than $100,000, including interest and penalties.
2. Agreements For Monthly Instalments
They are also known as long-term payment plans because they allow you to pay your taxes in monthly installments. You can apply for an installment plan online if you owe less than $50,000, including interest and penalties.
3. The Collection Will Be Delayed Temporarily
The IRS may temporarily postpone collection if you cannot pay your tax burden. You may need to fill out a “Collection Information Statement” (Form 433-F) to request this relief. You must also provide proof of your financial situation. It’s critical to remember that the amount you owe will continue to rise due to fines and interest.
Why Should You Request An Extension?
Filing an extension automatically removes the tax filing deadline and shields you from penalties and failure to file. Penalties for late filing can add up to 5% of the amount owed each month you are late.
If you submit your taxes late, you may face several consequences. Late filing might result in fines and interest fees added to the amount payable. The penalty for late filing usually is 5% of the unpaid taxes for each month or portion of a month the return is late, up to a maximum limit. Furthermore, if you are due a refund, filing late may cause the receipt of that refund to be delayed.
Thanks for reading the article….