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(Think you’re going to miss the tax deadline? File for an extension, even if it’s tax day.)
The IRS penalties for tardiness
The IRS has a few separate fines for being late with your taxes.
Filing your taxes late
For every month past the filing due date (or your extension date), you’ll be fined 5% of your unpaid taxes. These fines max out at 25% of your total tax bill.
If you file more than 60 days late, the minimum penalty is $435 (or, if you owe less than $435, the fine is 100% of your owed amount).
Paying your taxes late
If you don’t pay your owed tax on time, you’ll be fined 0.50% of your unpaid taxes per month, also up to a maximum of 25% of your tax bill.
The good news: the two fines don’t stack. If you’re late to both file and to pay, you’ll only be charged the 5% late filing penalty.
Don’t forget the interest
In addition to the fines, the IRS also charges interest on unpaid taxes. Interest accumulates from the day after the deadline until your bill is fully paid off. It compounds daily—which means it can add up quickly. You can find the current interest rate on the IRS website.
Pay your taxes right away (even if you can’t file)
Even if you need more time to file, you should still pay your taxes by the deadline. That’s because fines are based on the amount you owe the IRS. Paid taxes = no fines for you.
Simply estimate your tax bill and pay through the IRS payment portal. Easier said than done. Here’s our guide to calculating estimated taxes.
Pay as much as you can afford
If you don’t have the cash on hand to pay your full tax bill, try for a partial payment. It’ll reduce the penalties and interest that accumulate.
Another option is to pay using a credit card—in some cases, the credit card interest works out to less than the IRS fines.
Finally, the IRS offers ways to pay in installments. Although there might be set-up fees, a tax payment plan can help you map out how you’ll pay your outstanding balance.
If outstanding tax payments are building up, look into the IRS’s tax relief programs. They exist to help people pay their taxes without disrupting their financial well-being.
File now, amend later
If you’re missing documents required to complete your filing, you can still submit your tax return as is. Once you have everything you need, just send in an amended return.
The extra admin is worth the trouble—at 5% per month, that late-filing penalty adds up quickly.
If you’re owed a refund
Good news! You won’t pay any fines for missing the filing deadline. However, you should still file sooner rather than later.
The faster you file, the faster you’ll get your refund. You’ll also jeopardize certain tax credits or deductions by failing to file. Unclaimed tax refunds get turned over to the U.S. Treasury after three years, so get those taxes filed!
Be ready for next year
Once your return and payment are in, take a moment to breathe—and then take a few actions to make life less stressful next tax season.
Suggested resource: When Are Taxes Due? 2023 Filing & Extension Deadlines
Get your bookkeeping in order
Accurate records are crucial for preparing your taxes. Commit to doing your bookkeeping consistently throughout the year—or if you know that’s not going to happen, consider professional help.
You’ll also need a system to organize your receipts, invoices, and records. Our clients love going paperless, but if you prefer a file folder, go for it. Whatever will help you stay consistent.
Set aside money for taxes
Avoid the scramble to cover your tax bill by setting aside money in a separate account. If you’re not sure how much you’ll owe in federal taxes, saving 30% is a good rule of thumb.
Get a professional’s opinion
Have a CPA or tax professional look at your books well ahead of tax season. They can help you make sure you’re set up properly, maximizing your deductions, and taking advantage of year-end tax moves.
