File Your Taxes On Time, Even if You Can’t Pay On Time

Another week, another tax tip. The tax filing deadline this year is April 17th and we’re sure everyone that’s been reading our updates has already filed early (to avoid stress and potential tax return fraud). But you may have friends or family that aren’t quite as on the ball so we want to share this tip. 🙂

The deadlines for filing and paying any taxes owed are the same, but the penalties for missing those deadlines are not. The short version is: file on time, even if you can’t pay. The penalty for filing late is worse than the penalty for paying late.

A quick example: let’s say you owe $1,000 in taxes but you’re short on cash because of some unexpected expenses over the last few months.

If you file your taxes on time, but don’t pay them until June 15th (a little under two months late) you’ll likely owe about $15 in late fees. Late payments accrue a penalty of one-half of one percent (0.5%) of the amount owed per month, or part of a month, that you’re late. Part of April, May, and part of June means 3 months of $5 penalties (0.5% of $1000), or $15.

But if you DON’T file on time and choose to both file and pay on June 15th you’ll probably owe about $150 in fees. That’s because late filings accrue a much bigger penalty of 5% a month. (5% of $1000 is $50/month for 3 months).

That’s not a small difference, $15 if you file on time but pay late, $150 if you file and pay late. (Interest accrues on the amount owed too, but that happens whether you file on time or not so that applies to both options and we’re ignoring it for now.)

If you (or someone you know) are worried about paying their taxes on time this year do what you can to minimize the fees and interest. First, file your taxes (or at least an extension) by the April 17th deadline. Then explore the IRS payment options here: https://www.irs.gov/payments.

Read more: https://www.irs.gov/newsroom/eight-facts-on-late-filing-and-late-payment-penalties