It has been quite some time since the Tax Day 2019 passed; the deadline to file taxes was April 15. If, for some reason, you could neither file your taxes nor call for an extension, it means that you are late with filing your 2018 taxes. As a law-abiding citizen, it is important to understand the ramifications of late tax filing and how to manage them.
The Unavoidable Failure-to-File Penalty
For late tax filing, the IRS may impose the failure-to-file penalty for taxpayers who:
- Are guilty of not filing taxes on time; and
- Carry an outstanding tax balance
The failure-to-file penalty grows by 5 percent with each passing month of late tax filing. Along the way, the IRS also sends a lot of reminders to such taxpayers so they can file their taxes. Unfortunately, there is no way to avoid this penalty, and it begins to accrue right after the deadline ends.
Late Tax Filing Can Incur Additional Penalties
Did you forget to file taxes due to an unavoidable reason? How much is your outstanding tax bill? If you were negligent and did not pay your complete dues, you may have to deal with a failure-to-pay penalty.
In a situation where you are bearing the brunt of both the failure-to-pay and failure-to-file penalties, 5% of your unpaid taxes will be capped off on a monthly basis.
However, there is a light at the end of the tunnel as this year has been a good one for late tax filers. Reports indicate that this year, more people than ever are estimated to have underpaid to the IRS—mainly due to the impact of the reform on the 2018 taxes. On the IRS’s part, they did try to address this conundrum with the expansion of tax relief for the underpayment penalties.
First-timers can expect leniency from the IRS. Otherwise, you may have to deal with harsher ramifications. Apart from tackling the above-mentioned penalties, you can face levies such as wage garnishment. Do note that a warning precedes such drastic measures, but you should still keep in mind how harsh the IRS can be.
If the taxes you owe are greater than your ability to pay late taxes, you can take advantage of relief options such as an ‘offer in compromise’ or a payment plan that is customized according to your ability to pay.
Tax Refund Is Out of the Question
If this is your first time with late tax filing, you are in for a surprise: you cannot get back your money with a tax refund. On the brighter side, it can help you prevent the failure-to-file penalty.
If you do not file your taxes before a three-year deadline or you are already engaged with such a late tax filing situation, let’s be clear: there is no cash waiting for you from the refunds. Six years ago, unclaimed federal income tax refunds worth $1 billion were left behind because of late tax filing—we are talking about the cash that people earned legitimately but due to late tax filing, they had to overpay the government using the same money. Therefore, file taxes on time so you can reap the fruits of your hard work.
What If You Had a Valid Reason?
Some people may find the IRS harsh, but it is also quite fair if you have got a genuine case. In case you did not file taxes because of a “good reason,” the IRS is open to examine your case. They hear you out attentively and assess whether or not you have a valid reason for late tax filing. Bear in mind that proper documentation is the key! If they are satisfied, chances are that they may decrease your penalties and offer some waivers. So, what constitutes a good reason? It can be any of the following.
- If either the taxpayer or their immediate family member dealt with incapacitation, serious illness, or death.
- Disturbances because of natural disasters or a fire accident.
- A valid reason that held you back to collect the necessary tax records.
- A genuine explanation of why it was simply not possible to fulfill your tax obligations.
At this point, it is important to clarify that you cannot use lack of money as a reason for not filing or late tax filing. Albeit, if the reason behind the lack of money is linked with any of the above reasons, such as if a fire accident caused heavy financial damages, then certainly the IRS is going to have a soft stance.
However, do note that a valid reason does not generally warrant a waiver for any accrued interest from your balance. If an IRS penalty comes with interest that they intend to remove or reduce based on your reasonable cause, they may proceed only with the removal of that interest—not the complete penalty.
What to Do If Were Not Able to File Taxes on Time?
Regardless of the reason behind your late tax filing, take the initiative in your hand and file your taxes as soon as possible. The quicker you file, the more likely it is that you get your tax refund. Moreover, IRS can also reduce your tax bill if you owe them money.
In case quick payment is not going to help much, you need a tax preparation company. A tax preparation company consists of professionals that are proficient with all the tax reforms and regulations, and are especially well-versed on how to communicate and negotiate with the IRS. As such, if you want to know how to file late taxes, contact us so we can ensure that you do not have to pay high interests or penalties.