Contributed Writer: What to do if you missed the April tax deadline
April 18 was the tax deadline for most taxpayers this year. But if you haven’t filed your 2021 return, here’s how to avoid getting in trouble with the Internal Revenue Service (IRS).
First, gather all income and deduction information for the tax year, then contact a qualified tax preparer for an in-person or virtual appointment. Dealing with late taxes can be difficult and costly on your own.
If you are owed money, the sooner you file your claim, the sooner you will receive your refund. If you owe taxes, file and pay as soon as possible, which will stop the interest and penalties you owe.
If you owe money but can’t pay the IRS in full, pay as much as possible when you file your tax return to minimize penalties and interest. The IRS will work with you if you are having financial difficulty. If you continue to ignore your tax bill, the IRS may take collection action.
Some taxpayers may have more time to file their tax returns and pay their taxes. These include people living or working in a federally declared disaster area, eligible military service members and support personnel in combat zones, and U.S. citizens and resident aliens who live and work outside the United States and Puerto Rico.
There are several ways to pay your taxes: credit card, electronic funds transfer, check, money order, cashier’s check or cash. If you pay your federal taxes using a major credit or debit card, there are no IRS fees for credit or debit card payments, but processors may charge fees convenience or fixed costs.
Review your options, as interest rates on a loan or credit card could be lower than the combination of penalties and interest imposed by the Internal Revenue Code.
Taxpayers who cannot pay the full amount due should pay as much as possible. This will reduce the amount of interest and penalties due than if you pay nothing. Depending on individual circumstances, a taxpayer could benefit from an extension of the payment deadline, an installment agreement, a temporary delay or an offer in compromise.
For individuals, IRS Direct Pay is a fast, free way to pay directly from your checking or savings account. Taxpayers who need more time to pay can set up either a short-term payment extension or a monthly payment plan.
Most people can set up a monthly payment plan or installment agreement that gives them more time to pay. However, penalties and interest will continue to be charged on the unpaid portion of the debt for the duration of the installment agreement/payment plan. You should pay as much as possible before entering into an installment agreement.
Taxpayers with a history of filing and paying on time are often eligible for penalty relief. Taxpayers are generally eligible if they have filed and paid in a timely manner over the past three years and meet other requirements.
Your specific tax situation will determine the payment options available to you. Payment options include full payment, a short-term payment plan (payment in 120 days or less), or a long-term payment plan (agreed installments over 120 days).
Usage fees may apply depending on the type of installment plan you are approved for. A sole proprietor or independent contractor must apply for a payment plan as an individual.
You may qualify for a long-term payment plan (installment agreement) if you owe $50,000 or less in combined taxes, penalties, and interest and have filed all required returns. You may qualify for a short-term payment plan if you owe less than $100,000 in taxes, penalties, and interest combined.
It is important to understand the ramifications of not filing a delinquent return and the actions the IRS will take. Taxpayers who continue to fail to file mandatory returns and fail to respond to IRS reporting requests may be subject to various enforcement actions, including significant penalties and fees.
For example, the penalty for failure to file is 5% of the tax owing for each month or part of a month that a tax return is late. However, this penalty is reduced for any month in which the penalty for non-payment also applies. The basic rate of the penalty for non-payment is generally 0.5% of the unpaid tax owing for each month or part of a month.
Norman G. Grill is Managing Partner of Grill & Partners LLC, chartered public accountants and consultants to private businesses and high net worth individuals, with offices in Fairfield and Darien.