There’s nothing to prove the fact, but the term “better late than never” may have been invented by an accountant. Missing the tax deadline doesn’t mean you get to throw up your hands and quit; in fact, it’s a sign you need to get the ball rolling, and deal with outstanding taxes ASAP.
Here’s what to do if you’re late filing taxes.
IRS penalties for late filing
There are few different fines you may have to pay if you missed your tax deadline.
WHEN YOU FILE YOUR TAXES LATE
For every month after the due date—or your due date after getting an extension—you’ll be fined 5% of your outstanding tax payments. In total, these fines can’t grow to more than 25% of your tax bill.
If you file 60+ days late, your minimum penalty is $205. If you owe less than $205, your fine is equal to 100% of your owed amount.
WHEN YOU PAY YOUR TAXES LATE
For every month after the due date, you’re fined 0.5% of your outstanding payments, to a maximum of 25% of your tax bill.
Some good news: late filing and late payment fines don’t add up. If you’re late both to file and to pay, you’ll only be charged the 5% late filing penalty.
INTEREST ON LATE TAXES
On top of fines, the IRS charges interest on outstanding tax payments. This interest starts accumulating the day after the deadline, and keeps going until your bill is fully paid off. It compounds daily, so it can add up fast. The IRS website has the current interest rate.
Pay your taxes ASAP
Even if it’s going to take you extra time to file, aim to pay your taxes by the tax deadline. Fines are based on your outstanding payments—so, if you’ve paid all your taxes, you won’t have to pay fines.
IF YOU CAN’T PAY IT ALL, PAY WHAT YOU CAN
Even if you don’t have enough money to cover your total tax bill, you should still pay as much as possible. It will reduce the amount in fines you have to pay later.
You may want to pay with your credit card—in many cases, the interest rate is cheaper than the IRS fines for late payment.
Also, you can talk to the IRS about paying in installments. You may be charged a setup fee for this arrangement, but it can help you budget and map out how you’re going to cover payments.
File, then amend
Even if you don’t have everything you need to file your taxes—for instance, financial documents—you can still file your taxes “as is.” Then, file an amendment once you have all the information you need.
It’s worth the extra effort of filing then amending in order to avoid that 5% fine.
Getting a refund? Relax!
If you’re owed a tax refund, you won’t be charged any fines for filing late.
Still, you should file as soon as possible. You’ll get your refund sooner. Plus, if you file late, you could miss out on certain tax credits and deductions.
If you fail to file, you won’t get your refund—and, after three years, the money is handed over to the U.S. Treasury!
The IRS Taxpayer Relief Initiative
If you miss the July 15 tax deadline for 2020, and want to avoid a bigger bill, here’s some good news.
The IRS Taxpayer Relief Initiative is designed to help those impacted by COVID-19.
Here’s what that means for you:
- If you can’t afford your tax bill and must make an Offer in Compromise, the IRS is offering flexibility with payment plans
- Individuals owing less than $250,000 can set up a payment plan without providing a financial statement, so long as the IRS accepts your proposed payment amount
- If you only owe money for the 2019 tax year, and the amount is less than $250,000, you may be able to set up an Installment Agreement without a notice of federal tax lien filed by the IRS.
- If you use Direct Debit Installment Agreements, you may qualify to use the Online Payment Agreement system to propose lower monthly payments, or change your payment due dates.
Not sure what to do? Check out the IRS’ advice for those who missed the July 15 deadline.
Get ready for next year
So, you’ve managed to file and pay your taxes—even if they’re late. Congratulations!
Here’s what you need to do to stop it from happening again.
GET YOUR BOOKKEEPING IN ORDER
When your books are organized, you have access to all the financial documents you need to file your taxes on time.
We recommend checking out Bench. They give you a team of bookkeepers who handle your books for you, so you can focus on running your business, and end the year with a full set of financial info for filing.
And if you opt in for BenchTax, they’ll take care of your tax filing for you—handing it off to tax professionals who make sure you benefit from every deduction available.
PUT MONEY ASIDE
The best way to make sure you can pay your taxes on time is to set aside money in advance. Not sure how? A good place to start is by taking 30% off everything you earn and saving it for tax day.
GET HELP FROM THE PROS
Make sure you pay as much as you can as soon as you can, and start taking care of your filing ASAP, and you can avoid costly fines from the IRS. Plus, COVID taxpayer relief can get you a bit of leeway.
Looking for more help with taxes? Check out Bench and use my link to save 30% off your first 3 months.