Normally, income tax returns must be filed by the 15th day of the 4th month following the close of the calendar year or April 15th. However, in 2018 the 15th falls on a Sunday. Usually, when the 15th falls on a weekend, the filing deadline is pushed to the following Monday. However, in 2018, the following Monday, April 16, is Emancipation Day, a state holiday in the District of Columbia. This will push the deadline for filing your federal income tax return to Tuesday, April 17.
If you file for and are granted a six-month extension to file your return, the filing deadline will be October 15. Thus, this is the last day that you can file your tax returns and pay the taxes due without incurring penalties. To obtain this automatic six month extension to file your return, you must file form 4868 with the IRS before the due date of your return, April 17. If you have not completed your tax return yet, you may want to start thinking about doing so. As long as you meet the October 15 deadline, you can file your return electronically.
It’s important to remember that your filing extension only gives you six additional months to prepare and file your tax return, it does not extend the time to pay your taxes. So, if you owe taxes to the IRS for the 2017 tax year, those taxes will still be due on April 17th. Interest and penalties will also accrue on the amount you owe to the IRS from that date. Also, you cannot ask for an additional extension. You must either file your return by October 15 or face the consequences.
What Happens If You Don’t File Your Return By The Deadline?
The IRS wants your tax return, and it wants 100% of the taxes owed by the due date. If you fail to file your return by the extension deadline, you will be hit with additional interest and penalties; and, the longer you delay in filing or paying the taxes due, the higher the liabilities become.
The IRS interest on unpaid taxes is imposed at the federal short-term rate plus 3%. In 2018, this interest rate is close to 5% and compounds daily, starting from the date the payment is due. In addition to charging interest, the IRS has two separate penalties, depending on your situation:
- Failure to file – If you fail to file your tax return on time, you are charged a monthly penalty of 5% of the amount you own, up to a maximum of 25%; and,
- Failure to pay – If you fail to pay your taxes on time, you are charged a monthly penalty of 0.5% or ½ of 1% of the amount you owe, up to a maximum of 25%.
If you fail to file and fail to pay, the amount of the failure-to-file penalty may be reduced by the failure-to-pay penalty. In addition, if there is both “reasonable cause” and no willful neglect for your failure not to file or pay your taxes in time, the IRS, at its discretion, may waive any penalties; but, the burden is on the taxpayer to prove “reasonable cause” and it is extremely rare for a taxpayer to prevail.
Your best bet if you’ve missed the filing deadline is to file your return and pay your taxes as soon as possible. The longer you wait, the more money you will owe. The bigger your debt becomes, the more the IRS will pursue collection options. It’s a vicious circle. Even if you cannot pay the entire amount that you owe, pay something. That payment will lower the amount of interest that is accruing on your balance.
What Should I Do If I Cannot Pay My Taxes?
If you cannot pay your outstanding tax debt, you should still make every effort to file your tax return by the extension deadline. Doing so sends a signal to the IRS that you are acting in good faith and aware of the amount of the taxes that you owe and are trying to handle the situation responsibly. This, in turn, increases the odds that the IRS will be willing to enter into a payment plan or installment agreement with you to pay down your tax debt.
Remember, that the IRS will continue to assess interest and penalties against you until you do pay your debt in full. They can also levy your bank accounts or file a tax lien against you if you do not pay. A lien may damage your credit rating for up to 7 years after it is released. So, even if you cannot pay the full amount of your taxes now, you need to make every effort to work with the IRS to pay them as quickly as possible. In the end, paying something towards what you owe in taxes is always preferable to paying nothing.
For taxpayers owing $50,000 or less in tax, interest and penalties, an interactive Online Payment Agreement (OPA) application is available at https://www.irs.gov/payments/online-payment-agreement-application. Otherwise a taxpayer can request an installment agreement by filing form 9465. The IRS charges a small fee for processing such request.
Under the right circumstances, the IRS can also bring even more substantial penalties to the table. These include charges of:
- Civil fraud
- Criminal fraud
- Filing a frivolous tax return
A conviction on any of these charges will bring fines and even jail time.
The IRS is in business to collect taxes. They will not forget or forgive a debt except in extremely rare instances. Instead, they will take every necessary step to bring you into tax compliance. In the end, not filing your return or paying your taxes only hurts yourself. Every day that your taxes are late only increases the amount of money that you owe the government.
That being said, under certain circumstances, the IRS may be willing to waive the interest and penalties associated with failing to file a return and failing to pay taxes. These circumstances include:
- Natural disaster
- Inability to obtain records
- Serious illness
In all circumstances, the taxpayer will be required to provide the IRS with proof that establishes the event that caused the non-payment.
In the end, the IRS has a number of collection tools that they can bring against you if they feel you owe money to the federal government. However, the fact that they possess these tools does not make them infallible. This is where an experienced California income tax attorney or tax professional, can help to make sure any tax assessment against you is valid, assess your available options and guide you through the appeal process which may include an offer in compromise or installment agreement. Contact us today for a free and confidential consultation.