Uh oh. It is now after April 18th, and you did not file your taxes. What do you do?
If you are expecting a refund, you don’t sweat it because you do not get penalized for not filing in this case. You won’t get your refund until you do file, but otherwise, the IRS is not going to come after you for your paperwork. (If you wait until after April 18, 2020, though, the IRS keeps your refund, so you better get on it.)
However, if you owe Uncle Sam, you are in a little trouble right now, and the question is how to keep the trouble from growing bigger? Here is what to do if you missed the tax filing deadline and you owe the IRS income taxes for 2016.
Take These Steps Immediately
There are three things you need to do right away:
- File for an extension.
- Pay as much of the estimated tax as possible as soon as you can.
- File your tax return by the extension deadline of October 18, 2017.
E-filing is the fastest way to get your extension filed and your tax return once it is complete.
If your income was $58,000 or less, you can use the free version of a brand-name income tax software to prepare your return. If you earned over that amount and feel comfortable preparing your own return, you can use the IRS Free File Forms.
In both cases, you can use IRS Free File to file your return electronically. IRS E-file is available until October 18 for filing your 2016 income taxes.
Pay as much as possible toward your estimated tax bill because for every day that goes by more interest piles up. The more you owe, the higher the interest charge will be. Once you have paid what you can, contact the IRS to request one of the following:
- Payment extension
- Installment agreement
- Offer in Compromise
You can apply for a payment extension or an installment agreement online. There is a fee for applying for the installment agreement.
If you are at the point of asking for an Offer in Compromise, you should consider contacting a tax attorney for assistance in filing for it. It can be complicated, and a tax lawyer can help you make sure you have performed all the steps, filled out all the paperwork at the right time, and help you get your best offer.
How to Avoid Penalties
The best thing to do, of course, is remembering to file and pay on time. If you are going to be late and miss the deadline to file for an extension, you need to work on filing your return because the penalty for Failure to File is much higher than the penalty for Failure to Pay.
Remember, though, that when you fail to pay you not only incur a penalty, interest accrues as well, so your tax debt continues to grow. Here is a comparison of the penalties:
- Failure to File penalty is assessed at 5% per month or partial month up to a maximum of 25%.
- Failure to Pay penalty is assessed at 0.5% per month or partial month up to a maximum of 25%.
If you fail to file and pay, the failure to file penalty is reduced by the failure to pay penalty:
(Failure to File) - (Failure to Pay) = Total Penalty
Do not underpay. Unless you have a payment extension or installment agreement in place, do not underpay your taxes. Penalties for underpayment are assessed at differing levels depending on whether the IRS believes criminal intent was involved.
If no criminal intent is found, you will get fined a certain amount, and you must pay off your tax debt as soon as possible. If the IRS believes you deliberately underpaid with criminal intent you can be charged with:
- Criminal or civil fraud
- Frivolous return
The penalties for these charges range from a high fine to jail time.
More on Extensions
If you know you cannot pay in full, file for a payment extension and pay as much as possible, even if it means dipping into savings. Filing lets the IRS know you are aware of your situation and shows that you are attempting to resolve it. Filing for an extension on filing your return does not apply an extension to payment. You are expected to pay on time or suffer the penalties and interest.
After you file for your extension, contact the IRS to negotiate a payment plan. You have options, as we mentioned above.
- Extension of time to make a full payment
- Installment plans
- Offer in Compromise
If you know you can pay the balance within 120 days you can request a payment extension with the IRS Online Payment Agreement Application. Your penalties and interest will be lower than with an installment agreement. You are qualified for a payment extension if you owe $100,000 or less in combined taxes, fees, and interest. There is no setup fee for a short-term payment extension.
The IRS charges a setup fee if you qualify for an installment agreement and your penalties and interest will be higher than with a payment installment. You are qualified if you owe $50,000 or less in combined taxes, penalties, and interest. The set-up fee depends on how you will be making your payments.
An Offer in Compromise is an attempt to reach an agreement for you to pay the IRS a smaller amount than you owe. However, Offers in Compromise are only granted in extreme cases, and you would do well to have a tax attorney represent you when attempting this agreement.
Tax Day Was April 18 This Year, Why Is That?
You might have expected to get a slight break because April 15, 2017, is a Saturday; normally tax day would then move to Monday, April 17. However, Washington D.C. observed Emancipation Day on April 17 so tax day moved to Tuesday, April 18. Filing extensions will be due October 18, 2017.
So you had three extra days, and you still missed the deadline plus you owe taxes. This post should help you decide what to do next but whatever you decide, do it fast. The longer you delay, the higher the penalties get.
Good luck and if you need tax advice, give us a call. We will be happy to help you out.