What If You File Taxes Late? Here’s What To Do

what if you file taxes late, filing taxes late

Few situations create as much anxiety as filing taxes.  It’s worse if, for whatever reason, you are unable to file your returns by April 18, 2023, which is the filing deadline for tax year 2022.

If you fall into the category of a late filer, don’t despair.  You’re in good company.

By some estimates, as many as one-third of Americans delay preparing their returns until the last minute.  As many as 10% of all taxpayers file for an extension.

If you are among those taxpayers who need more time to file your returns, here’s what you need to know about filing taxes late. 

What to Do if You Missed Filing Taxes

filing taxes late

1. Filing for an extension

Any taxpayer can file for an extension.  If you do so before April 18 2023, you will extend your filing deadline to October 16, 2023.

Don’t confuse receiving an extension to file your returns with deferring your obligation to pay taxes you owe to the IRS.  If you don’t pay the taxes due by the filing deadline, you will incur penalties at the rate of 5% of the amount of the tax due for each month payment is not made.

If you are more than 60 days late with payment, you’ll be assessed a minimum penalty of $100, or 100% of the tax due with the return, whichever is less.

2. Extensions to pay tax

Don’t count on being granted an extension of time to pay your taxes.  

You’ll have to make this request (on Form 1127: Application for Extension of Time for Payment of Tax) before the date the tax is due.

You’ll also have to provide detailed financial information, demonstrate financial hardship, substantial financial loss and an inability to raise the funds through other means.

Assuming you meet these strict requirements, the IRS generally only grants a six month extension and requires an acceptable form of financial security.

3. The IRS loophole

There’s a loophole in the IRS Code that benefits taxpayers who file late, but are owed a refund by the IRS.  You’ll incur no federal tax penalty by filing taxes late, even if you didn’t request an extension.

Unless there are compelling reasons not to file on time when the IRS owes you money, you shouldn’t delay meeting the filing deadline.  By delaying your return, your refund will also be delayed and the statute of limitations for auditing your return won’t commence.

4. A bad combination

Not asking for an extension and owing the IRS money is a bad combination.

You’ll incur a late payment penalty until the tax is paid, plus interest on the amount owed as of the deadline date.

If you never file your return, the IRS has no limit on how many years it can assess taxes, penalties and interest.  You’ll also incur a “Failure to File” penalty, amounting to 5% of the unpaid taxes for each month or part of a month that a tax return is late, capped at 25% of your unpaid taxes.

In extreme circumstances, you may be subject to incarceration for up to five years.

filing taxes late

5. Inability to pay your taxes

An inability to pay your taxes isn’t the end of the world, but it’s not without consequences.

You will start to accrue interest and penalties on the amount you owe.

The IRS could place a lien on your property or garnish your wages.

You (or your attorney) may be able to negotiate with the IRS for installment payments or an offer of compromise.

  • Installments

If you are seeking an installment arrangement, you should file a Form 9465 Installment Agreement Request with your tax return requesting an installment arrangement.  If the amount owed is under $10,000 and you propose to pay it off within three years, the IRS won’t review your finances prior to making a decision.

The downside of requesting an installment arrangement are the fees, interest and late payment penalties the IRS will assess.

A less attractive option is to file your return and wait for the IRS to contact you with a demand for payment, but its demand will include interest and penalties.

  • Offer of compromise

There are limited circumstances where the IRS may accept a negotiated resolution of your tax liability for less than the amount owed.

If it appears that you are unlikely to ever pay off your tax liability, or doing so would result in exceptional hardship or unfairness, you have grounds for attempting to reduce the amount you owe.  Additional grounds include situations where the amount of the debt is in doubt.

According to Turbo Tax, you need to file a Form 656, Offer in Compromise with the IRS.  This form includes additional forms.  You may also need to provide additional documentation justifying your request.

Major Takeaway

Kicking the tax can down the road will only make the problem worse.  If you can’t file or pay your tax liability on time, consult with a competent tax professional, like a certified public accountant.  Ask them to review your situation and review your options.

You may find your situation isn’t as dire as you thought.