If you tend to find it hard to get going unless there’s a deadline bearing down on you, the tax filing deadline that the IRS usually announces should light a fire under you to get your forms ready. The tax deadline even applies to back taxes owed. If you need to file for a tax extension by this date, you’re free to do it; however, you need to keep in mind that an extension doesn’t really help you if you’re looking for more time to pay your taxes. Extensions only help you with more time to file your taxes; you must still pay by the original deadline.
The penalties can add up
The penalties that the IRS imposes depend on who owes what. If the IRS calculates your taxes and works out that filing would have only ensured that you got your refund, they don’t tend to punish you too much.
If you owe taxes but don’t file something by the due date — your tax forms, or at least an extension application — you will end up owing the IRS a $50 penalty for every $1,000 that you would have had to pay. If you continue to neglect to file your return for two months after the due date, the IRS calculates a penalty that’s worth either your entire tax bill all over again, or $450, whichever is lower.
While you will owe these penalties for your failure to send the IRS your forms on time, there is an all-new penalty that could apply for not paying your taxes on those missing tax forms. For every $1,000 in unpaid taxes that you owe the IRS, you may end up paying $5 a month as penalty. The IRS caps this monthly penalty at $250.
When you both fail to file and fail to pay, you do pay a bigger penalty, but the IRS gives you a kind of twofer. If your unpaid taxes are $1,000, you would pay $5 as your failure-to-pay penalty, but the IRS would give you a discount worth this amount on your failure-to-file penalty. For this reason, your failure-to-file penalty would be $45 a month, instead of the usual $50.
If you aren’t paying your taxes, the penalty isn’t the only thing that you need to worry about. The IRS imposes a 7 percent interest rate on those unpaid taxes, as well.
You also lose your refund. Most people who neglect to file their forms do so because they believe they made too little to justify a refund. Often, they are simply wrong. You could be due a refund even if you make too little to owe taxes.
If you are scrambling to find ways to save, try these ideas
If you find yourself putting off filing because you’re afraid of how you might not be able to afford what you will owe the IRS, you could do a few things to lower your tax bill.
Contribute to your IRA: You can make an extra contribution to your IRA retirement account any time before the tax filing deadline. You get to deduct your IRA contribution from your taxable earnings.
Deductions for unreimbursed expenses: You could also try deductions for things like medical expenses made out of pocket that you were not reimbursed for. You are able to lower your adjusted gross income by about 7.5 percent this way.
Tax credits: You may be eligible for a child tax credit or a higher education tax credit.
If you still don’t have the money that you need to pay your tax bill in full, trying to forget about the problem won’t help; while you may forget, the IRS doesn’t. You could file your forms by the last date, pay whatever you are able to afford, and then request a payment plan. The idea, when dealing with the IRS, is to always face your problems rather than shy away from them. The simple act of facing your problems can help make sure that they don’t become worse than they are.
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