You woke up on April 18 with a vague feeling that something was a bit off. It wasn’t until two bites into your sandwich at lunch that you realized what it is: You forgot to file taxes, even though the deadline was at midnight the night before.
Your head is reeling with nightmarish fantasies about what will happen to you because you failed to file on time. It might have even taken a bit of gumption to click the link to this story.
Fear not, procrastinating taxpayer. The reality of not filing your taxes on time is a lot less severe than you might think.
Everyone hears the term “penalties” applied to IRS late payment, but few know precisely how they work. There are two kinds of penalties that the IRS assesses:
Late filing penalties are assessed on people who owe the IRS money and did not file a return or an extension by the deadline, as well as people with an extension who fail to file by the October deadline. This penalty is 5 percent on all outstanding taxes.
Late payment penalties are assessed on people who owed the IRS and either filed on time or filed for an extension. The penalty is a mere .5 percent — one tenth of the penalty for those who file late. The IRS is generally far more understanding of late payments than late returns.
What To Do If You Haven’t Filed
In a word: file!
Filing a return late is as simple as filing one on time. In fact, you can continue to e-file your return until the October deadline. If you are owed a refund, there will be no difference between filing on time and filing late, provided that you file within three years.
If you owe the IRS, you will owe penalties as stated above, however this might not be as bad as you think. The IRS can put you on a payment plan in most circumstances.
Further, IRS customer service representatives are incredibly professional and want to help you pay what you owe. If you don’t file at all, the IRS may file a substitute return using information that it has on hand, such as your W-2 forms. This will not include any deductions or tax credits that you might be entitled to, so it’s in your best interest to file your own return, even if that return is late and even if you plan to get a refund.
A substitute return might offer a significantly lower tax refund than you are expecting due to the missing deductions. If you file your own return after a substitute return has been filed on your behalf, you can correct any oversights the IRS might have made, resulting in a larger refund.
The Importance of Filing on Time
Filing on time can be as simple as filing for an extension on time. While it’s unlikely that you’re going to land in jail for filing a return late, it’s in your best interests to file a return on time. If you owe, you will owe more by filing late.
Still, as the deadline has passed for this year, that might not be an option for you. In the event that you missed the filing deadline, file as quickly as possible afterward. Your bank account will thank you.
Nicholas Pell is a freelance writer based in Hollywood, CA. He always files the day before the deadline, despite promises to never do so again.