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Whether you're overwhelmed with tasks or just putting it off, if you haven't filed your taxes yet, don't worry—we're not judging. We're here to assist you. First, the good news: You’ve got a few extra days. April 15th is a holiday in D.C., so the deadline this year is Monday, April 18th. Follow this step-by-step guide to ensure you meet the deadline.
The Consequences of Filing Taxes Late
Warning to procrastinators: Filing late could result in hefty fees. If you owe taxes, you’ll face penalties both for submitting your return late and for paying late. TurboTax breaks down the details:
A late filing fee
is imposed if you owe taxes and fail to file your return or request an extension by April 18, 2016.
This penalty is also applicable if you owe taxes, filed for an extension, but fail to submit your return by October 17, 2016.
Tip: The penalty for filing late can be up to 10 times greater than the penalty for late payment. If you're unable to pay your tax bill and didn’t file an extension, make sure to file your return ASAP! You can always update it later.
A penalty for late payment will be applied
if you didn’t pay any additional taxes owed by April 18, 2016, regardless of whether you filed for an extension or not.
The late payment penalty is 0.5% (half a percent) of the unpaid tax for each month (or fraction of a month) the tax remains unsettled, with a maximum penalty of 25%.
If both late-payment and late-filing penalties apply in the same month(s), the 0.5% late-payment penalty is waived.
The IRS provides a complete list of all their late filing penalties, but here’s the basic idea: If you owe them money and don’t pay by April 18th, expect to be charged.
However, if the IRS owes you a refund, they couldn’t care less when you file. In fact, you’ve got up to three years to submit your return and still receive your money. After that, you lose your refund, and it becomes property of the U.S. Treasury. The IRS recently reported having $1 billion in unclaimed refunds, so if you haven’t filed in the past three years, now might be the time to do it. Ultimately, there’s no penalty for filing late if the IRS owes you money (unless you overpaid your taxes, but that’s on you).
Step 1: Decide If You Need to File for an Extension
Yes, the IRS will give you extra time to file, but there’s a major catch: you must still pay your taxes by Tax Day, even if you’re granted an extension. If you don’t, you’ll face the late payment penalty. Generally, an extension is only beneficial if you have extensive paperwork and need more time to file your taxes correctly. This buys you an additional six months to file without facing penalties.
You can apply for an extension online with IRS Form 4868 via Free File or download it from the IRS website. Be sure to submit your request by the tax deadline, and the form will guide you through the process of paying any taxes you owe. (You can estimate your owed amount with a Profit and Loss form from the IRS. You can also use this calculator for a rough estimate.)
Don’t attempt to deceive the IRS. If you owe $7,000 but “estimate” that you owe just $100, the IRS may deny your extension and impose a late filing fee. It’s safer to overestimate. However, if you underestimate, you’ll still need to pay the full amount when you file. The IRS requires that you pay at least 90% of what you owe by the deadline.
If you're expecting a refund, you don’t have much to worry about. If the IRS owes you money, they aren’t concerned with when you file, so you don’t need an extension. Just make sure you’re absolutely sure about your refund status, or you could end up with a hefty tax bill.
Most states accept your federal extension, meaning you don’t have to file a separate extension for state taxes. However, be sure to check the specific rules for your state here as they may differ.
Step 2: Decide How You’ll Pay
If you have the funds available to pay your taxes by the 18th, you’ll settle them when you file your taxes (or extension) on that day. If you don’t have the money ready, you have a few options to explore.
A payment extension: With IRS Form 1127, you can apply for a payment extension of up to 12 months if you're experiencing financial hardship. You’ll still need to pay interest, but the late payment penalty will be waived. The IRS explains all the rules here.
A Temporary Delay in Collections: With this option, the IRS agrees to pause your bill if you're facing financial struggles. You can apply using a Collection Information Statement (Form 433-F, Form 433-A, or Form 433-B). You’ll need to provide proof of your financial situation, and while they’ll postpone your payment, you’ll still incur interest and late payment penalties.
An Offer in Compromise: In rare cases, the IRS may settle your debt for a lesser amount through an Offer in Compromise. However, applying comes with a hefty processing fee ($186), and you’ll need to submit significant paperwork, which can be overwhelming if time is tight. The IRS offers a pre-qualification tool, which might be worth checking out to see if this is an option for you.
A short-term payment plan: You can set up a payment plan with the IRS here. A short-term plan gives you 120 days to pay. While there’s no fee for setting it up, you’ll still pay interest and late payment penalties. Since you’re on a repayment plan, however, the penalties and interest will be reduced.
A monthly payment plan or installment agreement: If you need more than 120 days, you can set up a repayment plan with the IRS, which involves processing fees. If you pay monthly, there’s a $52 fee to debit your account ($43 for low-income taxpayers). If you have a standard agreement or payroll deduction plan, the fee is $105. You’ll also need to pay interest and penalties.
The IRS provides full details on their payment options here. Some of the application processes are immediate if you apply online, but be sure to check the specifics to be certain. If your application is denied and the tax deadline has passed, penalties and interest will begin to accrue.
The IRS also offers payment relief for military personnel and residents of disaster-affected areas in 2015.
Step 3: Choose Between Hiring a Professional or Going Solo
If you have a regular full-time job and earn less than $62,000 per year, your tax situation should be fairly straightforward. You can use the IRS Free File option to submit your return online. Alternatively, you can file a paper return. The IRS provides information on where to file and which form you need here.
Perhaps you're self-employed, and you need assistance with deductions. Or maybe you're a freelancer, juggling a pile of 1099 forms. Or you could have several investment accounts, leaving you with a mountain of paperwork to tackle. If you're unsure where to begin with your taxes, it's likely worth hiring a professional to guide you, especially since you're running out of time.
If you're entrusting your taxes to a professional, be sure to select carefully, as you're ultimately responsible for any errors. The IRS has a new tax preparer directory to help you find the right expert.
Alternatively, you can always go the route of using tax software to assist you. Depending on your filing needs, you might end up paying around a hundred bucks, despite their so-called 'absolute zero' pricing. Consumerist explains:
You’ve likely encountered ads for TurboTax’s “absolute zero” pricing, but in reality, most taxpayers aren’t eligible for this deal. Only those who would typically file 1040A or 1040EZ forms qualify for $0 payment, which applies to people with a payroll job who don’t own a business, have a mortgage, or claim any dependents.
Their prices tend to rise as the deadline approaches. To give you an example, I’m a self-employed freelancer who often procrastinates on taxes. I end up paying around $150 to file with TurboTax every year. Next year, I might just decide to hand over all my documents to a professional instead.
Step 4: Arrange Your Tax Documents
If you choose to tackle this on your own, block off a few hours to focus. Then, prepare to push through it. Here’s how you can make the process more efficient.
Collect Your Required Documents and Forms
You’ll need W-2s, 1099s, receipts, and similar paperwork. Once you have everything, organize the documents into three groups:
Income: This is where you’ll place your 1099s and W-2s. These documents show your earnings for the year, whether from employment, savings account interest, dividends, etc.
Expenses and Deductions: The Motley Fool explains, “Here you’ll store mortgage statements, investment expenses, medical bills, childcare costs, and receipts for non-reimbursed/employment-related gas, food, and lodging.” In short, keep receipts and statements for every deduction you plan to claim at tax time.
Investments: This section is for all your investment statements, dividend notifications, purchase receipts, and any other investment-related documents you might need in April. You can also categorize this folder into taxable, deductible/tax-deferred, and nondeductible investments.
Once everything is organized, the process becomes far more manageable, allowing you to focus on each section of your taxes, one pile at a time.
Step 5: Dive Into Your Taxes and Submit Your Return
Filing your taxes may seem intimidating, but it’s really about reporting your income and taking full advantage of available benefits. Reporting income is straightforward, but ensuring you claim all your deductions, exemptions, and credits is key. Your tax software or preparer will guide you through this step. If you’re itemizing deductions, here are a few commonly missed deductions to look out for:
State sales taxes: Use this IRS tool to estimate how much you can claim as a deduction.
Tax preparation fees: Be sure to deduct the costs for hiring a tax professional or using tax software in 2015.
Job search expenses: You can deduct costs such as travel and other job-seeking expenses, including resume preparation costs.
Don’t forget to claim all applicable credits, such as the Earned Income Tax Credit, Education Credit, and Saver’s Credit.
If you’re working with a professional or using software that guides you through the process, you shouldn’t have any issues claiming all of your deductions, credits, and exemptions.
For those filing a paper return without professional assistance, you'll need to mail your tax return. You can find where to send it here. Most post offices also offer extended hours on Tax Day, and GOBankingRates provides a list of these hours by state.
Taxes can be a headache, and when you procrastinate, they become even more stressful as you try to fit them into your schedule by the deadline. Knowing your options and setting aside a couple of hours to power through them can help, and following these steps should make the process a lot easier.
