Did you already miss the tax filing deadline? The time to get going is now. Here are three reasons why you shouldn’t file your tax return late.
No joking around here. You need to get on this now. Don’t wait. Don’t delay. Don’t procrastinate. The time to file your return is NOW!
Because three bad things happen when you file your tax return late.
What defines late filing? A late-filed return is filed after the due date or any extension due date if you filed for an extension. I think you get the idea.
Any return filed after the deadline (typically April 15) is late. The deadline to file for an extension is also April 15 (can vary if April 15 follows on a weekend or holiday). Your new tax filing deadline is now 6 months later or October 15.
Late filing is separate from late paying. That’s right. Your tax filing and tax payments are two separate items.
For example, you can file your return on March 23 and pay your taxes on April 15. That is perfectly fine.
You can also file for an extension on April 14 and pay your taxes on April 14. Filing for an extension does NOT grant you an extension to pay your taxes.
IRS Catches You
The first reason to file on time is that the IRS can catch up with you. This means the IRS and possibly the state notices you filed late or possibly not at all.
Filing late imposes penalty and interest from the day your tax return and tax payment, if anything, were due. More on that later.
When you fail to file a return, the IRS has the right to create a return for you.
Yes. You read that right.
The IRS can create its own return for you based on the information it has received for you. This includes any W2s, 1099 NEC, 1099 MISC, interest income, dividend income, stock sales, etc. Most of the time you will not like the return the IRS creates for you and you’ll then have to scramble to get a “real” and more accurate return filed for yourself.
Now you are forced to gather all past tax documents, possibly business income and expenses, receipts, medical records, interest income, etc. It really is no fun to have this forced upon you.
Trust me. You don’t want this scenario.
If you find yourself in this scenario, you are risking a higher exposure to an IRS audit. Generally, the IRS audits about 1% of tax returns (higher if you have some red flags on your return). Your chances of an IRS audit increase by 50% or more if you file a late return.
Eeek. No one wants that, right?!?!
If you file late, you now increase your odds of saying: “Hello, IRS examiner.”
When you file and pay late, you trigger the 5 percent (this can vary) interest, not to exceed 25 percent of the tax due.
Now your tax bill just increased due to your procrastination.
Let’s say you file your tax return late by a year and you have a tax liability of $10,000. You didn’t pay any amount towards this amount by the April 15 deadline. The interest is going to be approximately $2,500. You now have a tax liability of $12,500. Do you really want to pay more to the IRS for your procrastination?
Remember this goes for anyone who doesn’t pay their tax on time. Filing your return is separate from paying taxes even if they have the same deadline (April 15). If you file for an extension, you better also pay any tax you think you might owe by April 15. The deadline to pay your tax is April 15 no matter if you file for an extension or not.
Should I say that again?
In order to avoid any interest on any tax due, you need to pay your tax liability by April 15.
If you are due a refund, this does not apply to you. You’re safe from any interest. You also have 3 years to file to collect your refund. After that, you completely lose any refund owed to you.
Penalties include failure to file and failure to pay. Remember, filing is separate from payment. Therefore, you might get hit with one or both of these depending on your situation.
The failure-to-pay penalty is in addition to any interest you might owe on your tax liability. The failure-to-file penalty is only if you file your tax return late and owe taxes.
You can imagine that the penalties and interest due add up and can significantly increase the amount you now owe to the IRS.
The IRS doesn’t allow any special deductions for penalties or interest.
If you have to pay taxes and penalties for failure-to-file and failure-to-pay, you also pay interest on both the overdue taxes and the penalties from the original due date of the return. One more good reason to file and pay on time.
File Your Tax Return Late
Understand why you shouldn’t file your tax return late now?
Avoid penalties. Avoid interest. Save yourself from a higher risk of audit.
It’s okay if you can’t pay in full. File anyway. This will prevent the failure-to-file penalties and interest from accruing. If you can’t pay on time or in full, consider one of these options to pay off your tax liability.
Lessen your chances of an IRS audit, penalties, and interest, file on time. If you’re struggling with tax preparation, find help with a tax professional or even a free-file center for those with lower income.