Ideally, we would all file our tax returns on time and pay every penny that we owe to the IRS by April 15. At times, however, we all have trouble living up to ideals. If you missed this year’s filing deadline, you obviously can’t go back in time and undo that, but there are steps you can take to limit the damage to your finances.
First of all, if the IRS owes you a refund, you have no reason to worry. Tax returns that correctly reflect a refund due can be filed up to three years late without penalty. Of course, you won’t get a refund without asking the IRS for it by filing that return. If you neglect to file your 2013 return by April 15, 2017, then the IRS is under no obligation to pay your refund, and it will be forfeited.
Additionally, if you missed the deadline because you were working overseas at the time, you may qualify for an automatic two months’ grace. If that is not enough time, you can request an additional four-month extension. However, any tax owed on your return was still due April 15, so you will incur applicable late payment fees.
Limit Your Penalties
If you owe tax, did not file an extension, and were not working out of the country, then it is critical to file your return as soon as possible, regardless of whether you can pay the bill. You can e-file late returns through October 15. If you file later than that, then you will have to submit a paper return.
Late Filing Penalty
The late filing penalty applies to taxpayers who are required to file a return or extension by April 15 and fail to do so and to those who fail to file a completed return by the time their extension expires. The penalty is 5% of taxes owed for each month or part of a month that the return is late. Once a return is more than a month late, the 5% penalty jumps to 10%. This monthly 5% increase continues until the penalty reaches 25%. If the return is over 60 days late (after June 14), however, the minimum penalty becomes $135 or 100% of the tax owed, whichever amount is smaller.
Late Payment Penalty
The late payment penalty is only 1/10 that of the late filing penalty, which is why it is important to at least file your return as soon as possible, even if you cannot pay what you owe. Late payments are penalized 0.5% for every month or part of a month past due. Like the late filing penalty, this amount can grow over time to a maximum 25% of the amount due. If both the late filing and late payment penalties apply in the same month, however, the IRS waives the late payment penalty.
Protect Your Access to Credit and Your Property
Financial institutions require copies of filed tax returns in order to process applications for many types of credit, including home loans, business loans, and student loans. Not having your documents filed can mean delays in accessing these kinds of funding. If you ignore the IRS long enough that they file a lien against your assets, that information will appear on your credit report and can stay there until seven years after the debt is paid and released. A federal tax lien against your property, which attaches to any real estate, personal property, and financial assets that you own, can also survive a Chapter 7 bankruptcy.
Preserve Your Social Security Benefits
If you are self-employed and fail to file a return within three years of the deadline, then you will not receive Social Security credits for that income.
The professionals at Boelman Shaw Capital Partners can help you catch up on your late income tax filing as well as help you plan to limit your tax bill for 2014 and beyond. Contact us to learn how we can help you get your finances on the right track.
Material discussed herein is meant for general illustration and/or informational purposes only. Because individual situations will vary, the information shared here should be used in conjunction with individual professional advice.