The Importance of Filing Taxes on Time Each Year
No one wants special scrutiny in their matters by the IRS. To stay on their good side, make sure you do not owe them any money that you cannot pay them back in the future. If you happen to be someone in a similar situation, you are feeling a bit uneasy as the tax deadline draws nearer. Although you could be tempted to skip tax filing in the hopes that the IRS does not notice you, it is a recipe for disaster. In all likelihood, the IRS will come across your name and notice that you have been skipping your tax returns. This will lead to hefty penalties that could be much higher than the amount you owed initially.
When Does Someone Owe a Penalty?
If a person does not file taxes when they owe the IRS money, they concede a financial penalty. Filing is necessary if you are looking to obtain a refund. Extensions on the time to file are not considered as extensions on the paying time.
In case you get a filing extension but are unable to pay tax bills, you may face penalties for late payment in most situations. All the penalties imposed for failure to file for taxes and late payment of taxes apply along with any interests that a person owes on their unpaid tax balance.
The IRS always reminds every taxpayer about the importance of filing their taxes promptly. Taxpayers are also reminded that they have various helpful options that will help them in case they are facing trouble with their payments. It does not matter whether you can pay the full amount or not; you should still file your taxes on time. After filing, they should try to pay the remaining money as soon as possible. The sooner you will pay your taxes, the lesser trouble you will find yourself in.
- You will prevent the loss of refunds in the future as the IRS deducts money for refunds for taxes owed
- Preventing added penalties and interest
- It helps to protect credit. A taxpayer’s credit score could get affected if he or she has a tax lien filed against them by the IRS. It causes difficulty for them to attain a loan.
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Important Facts for Filing Taxes on Time
- Penalty for Late Filing
If taxpayers take more than sixty days for filing their tax returns, they will have to pay the penalty. If the tax they owe is smaller than the imposed penalty, then they will need to pay 100 percent of the tax unpaid. If not, the penalty could be as high as five percent from each month's unpaid tax up to 25 percent at max. In case a refund is due for a taxpayer, he or she will not be penalized for filing late.
- Two Penalties
The two penalties talked about here include one for paying late and the other for filing late. These penalties tend to add up quickly. Plus, interest also starts to accumulate over the penalties.
- Penalty for Late Payments
Generally, the penalty is 0.5 percent from the tax unpaid every month. It could potentially build up to 25 percent of the tax unpaid. If a taxpayer has a payment agreement, the IRS cuts their penalty rate in half. In these cases, it is 0.25 percent, which is 1/4th of one percent every month.
- Extension Requests
Every taxpayer’s priority should be to file on time. They should request an extension if they are unable to file on time. Despite that, their priority should be to pay as soon as possible. The free file and e-file programs that the IRS offers are the easiest and fastest options to file. Make sure that you have your tax returns copy with you. You will need the amount from your Adjusted Gross Income from the previous year’s tax return for identifying yourself if you are using a filing software for the first time.
Those who are unable to pay in full should consider a loan. Payment through credit card or getting a loan would likely be cheaper than owing the IRS. Weigh your options and try to find out what would be the ideal option for your financial situation.
- No Penalization for Reasonable Causes
Taxpayers can avoid paying penalties for late payment or late filing if they can prove to have a reasonable cause for being unable to make timely payments. They could also qualify for a program known as a first-time abatement program if their previous payments and filings were on time.
- Combined Monthly Penalties
You will need to pay a combined penalty of five percent per month at max if you fail to file and pay both.
- Penalty for Late Payment May Not Apply
If taxpayers receive a tax-filing extension and make payments of a major chunk of what they owe before the deadline, the chances are that they will not have to pay the late payment penalty. You can request an extension and pay close to or more than 90 percent of your total tax liability before the set date. You can file the rest of the owed money later on. Although, you will still have to pay on payments that you receive after the filing deadline.
Whenever someone has to deal with the back taxes they owe to the government, they often try to come up with ways to cut back. Several tax laws know about the hassle that every taxpayer faces, which is why there are tax services for those who find difficulties in tax payments or do not have the necessary funds. However, if you can pay your taxes, why waste the energy or time to be summoned for late payment or jail time for failure to pay taxes.