April 18th is getting closer and closer. The tax filing deadline is now less than two weeks away. That should be stressing you out if you haven’t filed yet. It’s time to get your taxes together so you don’t face penalties and possible interest on what you owe the government.
What happens if I file late?
Filing late is a terrible idea. The IRS’s late-filing penalty is 5% of the tax owed for each month that you don’t file, maxing out at 25%. Let’s say you owed $1500, but you didn’t get around to filing until August 18th, 2016. You would owe an additional $300 just in late-filing penalties.
Don’t owe that much? There’s still reason to get scared financially straight. Let’s say you owe $200, and file by the same date in August. You’d only owe an additional $40, except for the fact that the IRS has a minimum penalty for people who file more than 60 days late. The minimum penalty is $135, or 100% of your return. So if you owed $200 and waited until August to file, you’d actually have to pay $335, and that’s if you’re only accounting for late penalties.
Luckily, this penalty is completely avoidable even if you can’t get your paperwork together by April 18th. File for an extension using Form 4868 and you’ll be given until October 17th, 2016 to get your taxes in without being subject to this penalty.
Doing so doesn’t take care of the late-payment fee, however.
What happens if I pay late?
Filing late and paying late usually go hand in hand. While filing for an extension can eliminate late-filing fees, it does not eliminate late-payment fees. Late-payment fees are 0.005% for each month that you’re late, up to 25%. This is true whether you’ve filed for an extension or not.
Let’s say you filed for an extension, but still didn’t pay until that date in August. You would owe an additional $30 in late-payment penalties alone. You may also get charged interest.
Interest will be charged and compounded everyday you are late. The rate is the federal short-term interest rate plus 3%, rounded to the nearest percentage point. Right now that means the interest rate would be 4%. That may not sounds like a lot, but when something is compounded daily, it adds up quickly. Very quickly.
That’s the simplest form of a late-payment penalty. There are some more nuanced aspects that you can find on the IRS’s website; you may be charged more or less depending on how you handle the situation.
What if I file late but am owed a refund?
You are in the only group that doesn’t have to stress. If the government owes you money, you have until April 18th, 2019 to file. If you don’t make it within three years, your money is forfeited to the government. It’s not best practice to get behind, though, so still shoot for April 18th, 2016.
I need help!
Still want to make the April 18th deadline, but don’t have a CPA at your disposal? There are a ton of great options for tax software to help you along your way. One of our favorites is TaxAct, whose packages start at $0 for both federal and state returns, and cap out at $59.98 for the most complex returns.
If you owe money, you’re going to want to get on that fast. Because paying interest and late fees can add up to create a heavy procrastination tax.