The COVID-19 pandemic is complicating several people's efforts to file their 2020 taxes ahead of schedule, but the good news is that the Internal Revenue Service (IRS) has been extended until May 17, 2021, when taxpayers are due to file their 2020 returns. But even if the extra time isn't enough to complete your returns, don't worry. Missing the deadline doesn't necessarily mean the end of the world, although you could receive hefty penalties if you don't file your return on time. If you already have to pay a hefty tax bill, you might get into more trouble (penalties) the longer you wait. Here are some basic things you can do to minimize interest and penalties if you end up paying taxes late.
Submit your return electronically
The most significant thing to do is file your tax return as soon as possible, and electronic filing is the fastest way to send your information to the IRS. E-filing services are generally available until October 15, the deadline for late filing, if you've requested an extension. If your revenue is $57,000 or less, you can file for free on the IRS website.
If you did not file an extension before the tax deadline, you would need to pay a fine for not filing on time. The fine is 5% of the tax due for each month of delay, up to a maximum of 25%. The late submission penalty is ten times greater than the late submission penalty, so it's worth filing your return as soon as possible.
Pay what you can
This can't be overemphasized. When you cannot pay your taxes in full, you may be tempted to defer your deposit until you have enough money, but this creates a bigger problem in the long run. If you file late, you should try to pay as much as possible to minimize penalties and interest. Even though the fine for non-payment is only 0.5% of the amount owed, it can still add up quickly.
If you need added time to pay, you should talk to a tax expert to explain the various payment plans offered by the Internal Revenue Service. There are different payment terms for individuals and business owners, and your eligibility usually depends on how much tax you owe. Interest and penalties will continually accumulate until your account is fully paid. Still, as long as you make payments on a timely basis, you will not be subject to any further collection action.
Special situations
The IRS recognizes that certain circumstances may prevent you from sending your return on time. Suppose you are a U.S. citizen and are out of the country before the application deadline. In that case, you will automatically have two additional months to file your return and pay any taxes owed without incurring any penalties. If you need time to file your return, you can request a four-month extension, but you will still need to pay the fees owed as soon as possible.
You can also get a penalty waiver if you cannot apply due to a situation beyond your control. For example, if you've had major surgery or an emergency that required you to travel, the IRS may be willing to consider you.
When are you due for a refund?
The IRS won't charge you a fee if you qualify for a refund, but you should continue to submit your return as close to the filing date as possible. The longer you delay filing, the longer it will take for the Internal Revenue Service to process your return and issue a check. You should also be informed that you cannot indefinitely postpone finalizing your return when expecting a refund. You only have 3-years from the filing deadline to get your return in; otherwise, you will lose the money Uncle Sam owes you.
If you do not file anything
If you don't file your tax return, don't assume old Uncle Sam won't notice. It may take time (months or even years), but eventually, the IRS will come for you. You will typically receive a letter informing you that you have unpaid tax debt. So far, you have accumulated hundreds, if not thousands of dollars in fines, interest, and arrears.
If you continue to ignore the warnings on your tax bill, the IRS may decide to put a lien on your property. You may also be subject to an audit if the government suspects that you have not filed your taxes correctly in previous years. All of these potential consequences come with major financial headaches, so if you're thinking about not taking action, think again.
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Elliot Kravitz, ATP