2018 taxes are due soon and, though everyone's tax situation is different, you could face real consequences if you don't submit your return by the deadline, Monday, April 15. Here's what you need to know.
There are different penalties for not filing your taxes and not paying them, says Bill Smith, managing director of CBIZ MHM's National Tax Office.
If you don't file, you can face a failure-to-file penalty. The penalty is 5% of your unpaid taxes for each month your tax return is late, up to 25%. The penalty starts accruing the day after the tax deadline. If you file more than 60 days late, you'll pay a minimum of $135 or 100% of the taxes you owe (whichever is less).
If you file your taxes but don't pay them, the IRS can charge you a failure-to-pay penalty. The penalty is far less: Generally, the IRS will charge you 0.5% of your unpaid taxes for each month you don't pay, up to 25%.
If both penalties "are running concurrently, the total per month cannot exceed 5%," Smith notes.
Even if you can't pay your taxes, it's still important to file, Smith says: "You need to either file by April 15, or file an extension by April 15." Anyone can request an extension, which gives you an extra six months, until Oct. 15, to file.
If you don't file, the consequences can pile up, thanks to fees and interest. Plus, you may miss out on a refund by not filing.
Say you owe $10,000 in taxes, don't file for an extension and pay on Oct.15, says Smith: "By not filing for an extension, you have a 5% per month penalty for failure-to-file (25% total or $2,500 through Sept. 15) and a 0.5% failure-to-pay penalty for October (or $50). Had you filed an extension request, the penalty would have been six months at 0.5%, or $300."
Penalties only come into play if you owe the IRS, says Smith: "Both penalties are a function of the amount of tax owed. So if you are entitled to a refund there will be no penalties. Just make sure you file within three years or the IRS is no longer required to pay you your refund."
If you continually ignore your taxes, you may have more than fees to deal with. The IRS could:
- File a notice of a federal tax lien (a claim to your property)
- Seize your property
- Make you forfeit your refund
- File charges for tax evasion
Now that you're inspired to get started on your 2018 tax returns, if you haven't done so already, read up on the common errors that can slow down the filing process.
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