Bank Deal: Earn 1.00% APY on an FDIC-insured savings account at Barclays Bank.
With just a few days left before taxes are due, I thought it would be worth talking about what happens if you miss the deadline and wind up filing late. The short answer is that you run the risk of penalties and interest, and failing to file on time is much worse than failing to pay on time. For more details, read on…
Enforcing the filing deadline
For starters, rumor has it that the IRS doesn’t bother checking postmarks for returns that are just a couple days late, so you might be okay. The problem is that there is a lot of variation inherent in the US Postal Service, and they’ll also be receiving millions (and millions) of last minute returns. Thus, as long as your return is close to being on time, they might not even notice.
I can’t speak for the actual filing deadline, as I’ve never rolled the dice on that one, but I’ve certainly found this to be true for quarterly tax deadlines. On more than one occasion in the past, I’ve mailed our quarterly payments a day or two late and I’ve never heard back from the IRS about it. It might be that they didn’t notice, or perhaps they realized that it was more costly to print and mail a notice than it was to just let it slide.
But if you do file late – and the IRS catches you – the interest and penalties will accrue from the actual due date through the postmark date. So… What if you file (or pay) late, and you get caught?
Penalties for filing and/or paying late
As it turns out, the penalty for “failure to file” is much steeper than the penalty for a late payment. Thus, if you can’t afford the amount due, you should still file your return (or request a filing extension) in a timely manner and then explore alternative payment options.
To be a bit more specific, the penalty for late payment is typically 0.5% of your unpaid taxes per month (or portion thereof) after the deadline that your taxes go unpaid. This penalty can wind up being as much as 25% of your total amount due, so don’t let it slide any longer than absolutely necessary.
In contrast, the penalty for filing your return late is typically a whopping 5% of your unpaid taxes per month (or portion thereof) after the deadline that they receive your return, topping out at 25%. And if you file more than 60 days late, the minimum penalty is the smaller of $135 or 100% of the taxes that you owe.
Keep in mind that, as long as you request an extension and pay in at least 90% of your actual tax liability by the original due date (including withholding and estimated payments), you’ll avoid any underpayment penalties as long as the balance if paid no later than the extended due date.
(More on penalties from IRS.gov: link)
What if you’re expecting a refund?
If you’re expecting a refund there’s actually no need to file on time. As I’ve detailed above, all penalties and interest are based on your unpaid balance. If you don’t owe a dime, the penalties will add up to a whopping zero dollars. Thus, as I’ve detailed elsewhere, if you’re expecting a refund, you may not have to file on time.
Of course, if the IRS owes you money, you should do whatever you can to collect it as quickly as possible. And keep in mind that the IRS statute of limitations runs out after three years so, whatever you do, make sure you claim your refund within that timeframe or you’ll forfeit the money that you are due.
P.S. If you need more time to finish your taxes, don’t forget to request a state income tax filing extension in addition to your federal extension.
- How to Become a Millionaire
- How to Get Out of Debt
- The Best Dollars I've Ever Spent
- How Our Estate Plan is Structured
- How We Paid Our Mortgage In Less than 10 Years
- Money Making Ideas
- How to Manage Your Asset Allocation with Multiple Accounts
- Consumption Smoothing - Save While the Saving's Good
- How to Save on Groceries
- How Much Life Insurance Do You Need?
- Eleven Great Books About Money
- Dave Ramsey is Bad at Math (692)
- Dish Network Customer Service SUCKS (535)
- $8,000 Homebuyer Tax Credit (429)
- Pay Off Mortgage Early or Invest? (424)
- How to Claim the First-Time Homebuyer Tax Credit (352)
- Termite Control: Sentricon vs. Termidor (326)
- How Much Should You Pay a Babysitter? (284)
- Ethanol Blended Gas = Lower Mileage? (272)
- Reduced Credit Limits? Share Your Experience (256)
- $15,000 Homebuyer Tax Credit (242)
- Buying Furniture off the Back of a Truck (230)
- Will Mac OS X Lion Kill Quicken 2007? (191)