Did tax day catch you unprepared this year?
If you didn’t file your return, request an extension, or pay your bill by April 15, the time to act is now.
Whether you owe money to the government, or the government owes money to you, settling your account sooner rather than later will make dollars and sense.
If Uncle Sam Owes You
If you are one of the millions of lucky taxpayers who are entitled to a refund but who haven’t filed a tax return yet, what are you waiting for? Every day the government keeps your money is a day that you could have earned an investment return, but didn’t. It is as though you deposited your money into a savings account that pays no interest. You wouldn’t purchase a stock that never appreciated in value or paid a dividend would you? Failing to claim your refund on time is essentially the same thing, so if the government owes you money, file your return ASAP.
If You Owe Uncle Sam
If the tables are turned and you owe money to the government, making your payment on time is even more important. Like a credit card company, the IRS charges penalties and interest on late payments. Your late account begins to accrue interest April 15, even if you requested a deadline extension for your Form 1040. And you won’t like the interest rate either. It’s the short term federal rate plus 3%. Last week, that would have been a rate of 4%, or $40 of interest if you owe $1,000 of tax.
But wait, that’s not all. In addition to interest, there are also late payment and late filing penalties. The late payment penalty is one-half of one percent of your overdue tax bill, and just like a credit card company, the IRS will hit you with it every month until your bill is paid. The late filing penalty is even worse. It’s 5% of your overdue tax bill, charged monthly, for up to five months until your return is filed.
If You Have a Really Good Excuse
But this story isn’t all doom and gloom. Believe it or not, there is a bright spot if you failed to file or pay on time for reasons beyond your control. If you have a reasonable excuse for your overdue return or payment, you may be able to avoid paying the late filing and late payment penalties by calling the IRS at 800-829-1040 for assistance. You’ll still owe your taxes and interest of course, but you may be able to avoid some of those nasty extras.
If you owe money to the government but can’t pay your entire bill at once, the IRS will help you work out a payment plan that can lower the late payment penalty to one quarter of one percent.
The moral of the tax story? If you haven’t filed or paid your taxes yet, don’t fall off the grid. Contact the IRS instead. A little bit of short-term frustration can really pay off in the long run. And to save even more, check out our complete archive of Daily Deductions.