Filing taxes is a rite of passage for many Americans. If your household earns over $25,100 (2021), $12,550 as a single filer, or you make over $400 in net self-employment income, you must go through the filing process each year.
If you’re not sure what’s involved in filing your taxes and leave it to the last minute, you may find yourself at risk of lodging a late return. If that happens, you may be on the wrong side of the Internal Revenue Service (IRS), which is not in your best interest.
Consider taking the following steps if you know you’ll be lodging your tax return late.
Hire an Expert Tax Agent
When you type “tax agents near me” into a search engine, you will see page upon page of tax experts and accountants who can assist with your obligations. Whether you’re late, almost late, or on time to file, finding a reputable tax accountant is always a good idea.
Tax agents can file a return on your behalf with your tax information and can essentially take over communicating with the IRS, so you don’t have to worry about it. This can be a significant weight off your mind.
File for an Extension
Not everyone intentionally avoids filing or paying their taxes on time. It can happen for many reasons, such as if you’re out of town during tax season, you’re missing vital information to file, or your scheduling or work demands prevent you from being able to focus on it.
Whatever the reason, you may be pleased to know that you might be able to file for an extension. Generally, this involves filling out Form 4868, allowing you to request an automatic extension of time to file your individual income tax return.
Once you’ve filled out and sent in this form, you may have extra time up your sleeve to file your tax return or supply information to your accountant to manage it on your behalf.
Prepare to Receive a Summons
If you’ve failed to use a tax agent or request a tax-filing extension, you may need to prepare yourself for a summons from the IRS. Usually, this arrives in the mail and forms part of the IRS collection process. This document legally compels you to meet with the IRS so that they can calculate your tax liability.
Pay a Fine
The unfortunate reality is that failure to file your taxes or pay them is a fineable offense with the IRS. If you’re late lodging your tax return, this may be something for which you need to be prepared.
Penalties are generally calculated based on what you’ve failed to do. A failure to file penalty could equate to 5% of your unpaid taxes for every month your return is late, not exceeding 25%. A failure to pay penalty may also be applied to the previous penalty or if you’ve filed but haven’t paid.
After 60 days of not filing or paying, you’ll owe a minimum of $435 or 100% of the tax required to be shown on the return, whichever is less. You may also begin accruing interest on the amount you owe, which is added to the penalty. Interest typically consists of a fluctuating federal short-term rate, such as 3%.
Even if you don’t know how to file your taxes, they are a legal requirement if you meet the filing criteria. Rather than waiting until they’re late, consider filing for an extension or hiring an expert tax agent to guide you through the filing process.