Tax season can be a stressful time. Some taxpayers are overwhelmed when April 15th rolls around, and they end up missing the deadline because they can’t afford their tax liability or they haven’t been able to get their records together. The question at that point becomes what to do if you didn’t pay taxes on time? Should you overdraft your account? Get a loan? Borrow money from a friend or family member? Or just lay low until you can file your taxes appropriately and pay the full amount? This post will help you figure out what to do if you didn’t pay taxes on time.
Although tax time is stressful, it doesn’t have to be. The IRS offers automatic filing extensions to all Americans, regardless of the reason. Although this doesn’t mean you can totally postpone paying taxes, it does give you more options to make ends meet. If you already missed the deadline to file an extension, there may be other options available.
Below are a few things to keep in mind if you are concerned about paying your taxes by April 15, or if you already missed the deadline and didn’t pay taxes on time.
Tax Filing Extensions For Those Who Can Pay
Filing an extension is an easy way to stay out of trouble if you aren’t able to file taxes on time, but it doesn’t mean you are in the clear completely. Tax extensions are designed for folks who cannot finish their filing in time, but generally can afford paying their estimated taxes. In other words, it’s an extension on the filing but not on the payment.
For example, a taxpayer who has lost a W-2 and is waiting for a copy might consider filing for an extension to give himself more time to get everything in order. However, he would still have to pay the required tax payments by the April 15 deadline.
To file an extension, you will use Form 4868. This extends the taxpayer’s filing deadline to October 15. Taxpayers must include an estimate of their tax liability and the full payment of that amount on their return in order to properly file the extension.
Tax Filing Extensions For Those Who Can’t Pay
Filing an extension can benefit taxpayers who are not able to pay as well. The extension is helpful because of the way the IRS calculates the penalties for late payments. Taxpayers who can’t pay, but file an extension will have lower tax penalties for late payment.
If you completely fail to file a tax return or an extension, then the IRS will penalize you at 5% of your unpaid tax every month that you are late. The IRS puts a ceiling on the penalty at a total of 25% interest per year.
If you file an extension by April 15, however, your penalty for late payment is limited to 0.5% interest on the unpaid tax. If you have thousands of dollars worth of tax liability, this difference can be a big help.
For instance, in you have $2,000 in tax liability, the extension allows you to accumulate only $10 per month, rather than $100 if you didn’t file an extension. Further, if you are over 60 days late on filing a tax return, the IRS will assign a minimum penalty equal to the lesser of $135 or 100% of your unpaid taxes. This all can be avoided by properly filing an extension by April 15.
What to Do If You Miss the April 15 Deadline
Generally, you won’t really get in trouble for being late on taxes. The IRS engages in civil audits, which determine how much money a taxpayer owes, much more often than criminal investigations, which determine whether a taxpayer has been engaged in tax evasion.
There is a pretty high bar for criminal tax liability. The IRS will not prosecute anyone that does not intentionally evade taxes. Tax evasion most often occurs through some kind of fraud or deceit, rather than just the inability to pay or file taxes on time.
Being negligent or reckless in your tax returns or filing dates should not subject you to criminal liability. But, if you are showing a pattern of tax manipulation or have not filed taxes in several years, then the IRS might perceive that you are actually intending to evade taxes and thus might open an investigation.
For most folks, there is nothing to worry about besides the typical civil penalties for late tax filings and payments that are explained above. However, it is best to get your taxes in order as soon as possible in order to avoid penalties piling up, and to minimize the risk of an investigation for criminal tax evasion.
Taxes can be complicated and stressful. There is a lot of room for mistakes. If you owe a lot in taxes, the civil penalties associated with filing incorrectly or failing to file on time can cost a lot of money. So what should you do if you can’t afford taxes or you didn’t pay taxes on time?
Here is a summary of the points in this post to help you know what to do:
- If you can afford to pay your taxes by April 15 but you are having trouble filing your tax return, file an extension. You will not have any penalties for late payment and you will have an extra 6 months to file.
- If you cannot afford to pay your taxes by April 15, you should file an extension anyway because it will reduce the penalties you have to pay significantly.
- If you already missed the April 15 deadline and didn’t pay your taxes or file an extension, don’t worry too much. It is unlikely that the IRS will come after you unless it becomes a pattern and you owe a substantial amount of money. However, you need to do everything possible to get your tax situation in order as soon as possible. So come up with a plan, and start taking action now to straighten out your tax problems.
If you need help figuring out your tax situation, the best thing you can do is talk to a CPA or a tax attorney. Protect yourself and make sure you are handling your taxes the right way and minimizing your penalties and your possible liability.
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