Don't Mess With Taxes

Photo by Markus Winkler

Tax Day came and went, and you weren't part of the annual Internal Revenue Service's every earner is invited party.

It happens.

Maybe a personal emergency took precedence. Perhaps you meant to get the job done, but it took longer than you planned and exasperated, you just said, "Later!" Or you discovered you owe, but don't have the money and thought, "What's the point?"

The point, regardless of why you didn't get your Form 1040 (or Form 4868 to get a six-month extension) to the IRS on time, is that your continued procrastination could cost you. Big time.

Penalties already are accruing. And they add up for both filing late and paying late. Plus, there's the interest, which has bumped up lately due to inflation.

Here are four steps to take as soon as possible to stop Uncle Sam's potential drain of your bank account.

1. File a return.
As noted, getting your Form 1040 to the IRS as soon as you can will stop the late-filing penalty charges. Even if your return has errors, it's better to get something in to the IRS and then correct your mistakes by filing an amended return.

Plus, getting your 1040 form into the system will prove to the IRS that you know you have a tax responsibility and you're doing your best to fulfill it. The quickest way to do this is to e-file. You can still use Free File if your adjusted gross income, regardless of your filing status, is $73,000 or less.

2. Pay what you can.
Now about your tax bill. If you didn't file because you owe, you've doubled your tax trouble. Again, as noted, the non/late-payment charge is in addition to the non/late-filing one. There is a bit of a break when both apply, but do you really want to pay the federal government any more than you absolutely have to? Didn't think so.

If you can't pay your full tax bill, pay what you can. Again, now.

If you e-file your return, you'll be given an option to electronically pay. You can get an idea of the IRS' electronic payment options in my post 6 ways to e-pay your federal tax bill. Also check out the IRS' Paying Your Taxes page.

3. Set up a payment plan.
OK, your tax bill is big. Really big. In this case, you should look into paying it off over time. If you went to the IRS' tax payment page, you might have noticed the section on applying for a payment plan, including an installment agreement.

If you can come up with the tax due relatively soon, a short-term payment plan might be a good option. The IRS' short-term payment lets you pay your full tax debt in 180 days or less, as long as the amount you owe is less than $100,000 in combined tax, penalties and interest. There's no set-up fee, but penalty and interest charges will continue until your balance is paid in full

You can set up short-term tax plan payments directly from your checking or savings account, or pay by check, money order, or debit/credit card. Fees will apply when you pay by plastic.

The IRS also offers a long-term tax payment plan, also known as an installment agreement, if the tax you owe plus penalties and interest is less than $50,000. You can pay off your tax bill monthly via automatic withdrawals. There's a $31 set-up fee, although it could be waived if your income isn't that much. Don't forget the penalty and interest amounts.

Check out the options and frequently asked questions at the IRS.gov Apply Online for a Payment Plan page.

4. File your state returns, too.
Most states and the District of Columbia collect some form of income taxes from their residents. And most of them follow the IRS filing calendar. If you missed the federal Tax Day, then you likely missed your state's tax filing due date, too.

Each state has its own rules and penalties for late- and non-filers, but they all share one thing. State tax offices, like the IRS, also charge for late filing. So the longer you put off your state tax filing, the more you'll owe your state tax collector.

Check with your state tax department about the steps you need to take here to reduce those penalties.

OK, you have a late-filing game plan. Act on it. Now.

With taxes, late truly is better than never.

You also might find these items of interest:

• It's state tax filing time, too
• Tax Day 2023 is later for some in 8 other states
• Some state refund recipients should amend their federal tax returns

Advertisements