It can be easy to assume that postponing your tax return filing isn’t that serious—particularly if you didn’t earn very much in the previous tax year or you suspect you’ll be due a refund. However, the IRS imposes stiff consequences for late filing for all tax payers, and some of the penalties can add up quickly.
In this article, we examine what you can expect if you file your taxes late.
If you owe taxes
If you file your return late and you owe taxes for the year in question, then you will be charged the amount you owe plus: a failure to file penalty, a failure to pay penalty and interest.
It’s worth noting that the failure to file penalty is significantly higher than the failure to pay penalty. In the former case, you’ll be charged 5 percent of the amount due for each month you fail to file. In the latter case, you’ll be charged 0.5 percent of the amount due for every month you fail to pay.
This means that even if you’re unable to pay the taxes you owe right away, it’s still advantageous to file your return immediately. If, for example, you owe $1,500 in taxes, you could be charged an additional $75 per month if you don’t file or pay on time, but only $7.50 per month if you file on time but don’t pay right away.
If you’re due a refund
Even if you’re due a refund, filing late puts you at risk of losing it. Bear in mind that you must claim your refund within three years. The same holds true for tax credits, such as the earned income credit. In addition, if you file a tax return for the current year and are due a refund, but you haven’t filed your tax return for a previous year, your late filing status from that year may delay your current year’s refund.
If the IRS sends you a letter informing you of your late filing status, it doesn’t automatically mean you’re under criminal investigation. However, it’s a warning that you should take seriously, and you should file your return as soon as possible. If you have questions, consult with an experienced tax attorney for help.