Can’t File Your Taxes on Time? Here Are 5 Steps You Should Take Right Now, According to Experts
Preparing and filing your taxes can be daunting to say the least. While the IRS recently extended this year’s tax deadline to May 17 to help Americans “navigate the unusual circumstances related to the pandemic,” there are still plenty of reasons why you might be tempted to put off filing your taxes on time.
“This year taxes might be especially complicated for some taxpayers,” Mikkel Jensen, the United States Director of Ageras, tells Apartment Therapy. “If you’ve switched jobs this year, or if you’ve picked up independent contractor work, for instance, the fear of filing the wrong forms or supplying incorrect information might cause you to consider filing your taxes late — or not at all.”
Whether you’re waiting on an important tax document, or are a self-proclaimed procrastinator, Mark Steber, the chief tax information officer at Jackson Hewitt Tax Service says there are financial consequences for not filing your taxes on time. “Taxpayers can face various penalties if they miss the deadline,” he warns. “The biggest penalties are failure-to-file and failure-to-pay… and since each penalty is treated separately, both can apply.”
If you’re worried that you can’t file your taxes on time, it’s important to remember that you have options. From filing for a formal extension to setting aside cash for penalty fees, here are the steps tax experts say you should take if you think you might have to file your taxes late.
Try to file your tax return on time even if you can’t pay the bill.
If you’re putting off filing your taxes because you’re anticipating a large tax bill, Tina Orem, a tax specialist at NerdWallet, says you should reconsider. “The penalties for filing a late tax return can be higher than the ones charged for paying your taxes late,” she explains.
If you fail to file your taxes by the tax deadline this year, Steber warns that the IRS can charge you with a failure-to-file penalty. “The failure-to-file penalty is generally five percent of the unpaid tax amount each month, and it caps out at 25 percent,” he explains. “Late filers are assessed the failure-to-file penalty for each month they did not file.”
Find out if you qualify for an automatic extension.
There are special circumstances for which Steber says the IRS might grant you an automatic tax extension. “If you’re a U.S. citizen who lived and worked outside of the country on the deadline, or if you are a member of the military and are in a combat zone for any time during the filing season, you may have until June 15 to file your tax return,” he explains.
The same automatic extension applies to taxpayers affected by federally declared disaster situations, including victims of Hurricane Zeta and Winter Storm Uri. “Earlier this year, there were a number of storms that hit Texas, Oklahoma, Louisiana, and Mississippi,” explains Colleen McCreary, a financial advocate and the Chief People Officer at Credit Karma. “As a result, the IRS announced relief for victims and individuals in these states until June 15, 2021, to file various individual and business tax returns and make tax payments.”
Request an extension to file.
If you don’t automatically qualify for an extension but still need more time to file your taxes, Steber says taxpayers can apply for one, either by mail, through a tax professional, or through an online filing service, using IRS Form 4868. “If you’re approved, this will extend the tax filing deadline until October 15, 2021,” he explains.
To qualify for a tax extension, McCreary says you’ll need to file Form 4868 by April 15, 2021, and include a proper estimate of any back taxes you might owe for 2020. “It’s important to remember that you will still be required to pay your estimated tax liability by the Tax Day [May 17] deadline,” she explains. “If you’ve overpaid or underpaid on your estimate, any overages or underpayments will be sorted out by your adjusted return deadline.”
Pay your tax bill on time.
Even if you’re granted an extension to file your taxes, you will be charged with a failure-to-pay penalty if you don’t pay your 2020 tax liabilities by May 17, 2021, Jensen says. “The failure-to-pay penalty is imposed if at least 90 percent of a taxpayer’s expected taxes due are not paid by the regular tax deadline,” he explains. “The penalty amounts to 1/2 a percent of unpaid taxes each month, and caps out at 25 percent, which can add up fast over time.”
If you can’t afford to pay the full amount of your tax bill by Tax Day, know that you have options. “The IRS provides a variety of options including payment plans, which you can apply for via their website, and an offer in compromise, which allows you to settle your tax debt for less than the full amount owed,” he says. “The IRS also has options to defer payment or collections of your tax debt, but you will need to contact the IRS directly in order to qualify for this option.”
Save up now to avoid paying as much interest as you can.
Regardless of when you file your return, or whether you’re granted an extension, Jensen says your outstanding tax bill will also begin to accrue interest if you don’t pay it in full by Tax Day. “The interest rate on your tax bill is determined each quarter, and will amount to the federal short-term rate plus an additional three percent,” he explains. “This interest also compounds daily, so it is crucial to pay your tax bill as soon as possible in order to avoid racking up high-interest charges.”
To help pay down your tax debt faster and slow down the accumulation of interest fees, McCreary recommends saving as much extra cash as you can every month to make larger payments towards your tax bill. “This may mean making some short term adjustments, like cutting down on spending on nonessential items until your tax bill is paid, but it will be worth it if you can avoid paying costly interest,” she explains.