Every year in mid-January, tax season kicks off as taxpayers prepare to file their returns. In 2022, most taxpayers have until April 18 to send in their returns. But some taxpayers may end up not filing by that deadline because they don’t have enough money for their tax bill, are missing necessary tax documents, and other reasons. Read on to learn more about the penalty for filing taxes late and some tips to file on time and avoid those penalties.
How do late filing penalties work?
According to the IRS, you will be charged a penalty equal to 5% of your unpaid taxes for each month or part of a month that you file late. This starts accruing the day after your filing date, but it maxes out at 25% of your unpaid taxes.
Ways to avoid filing your taxes late
Here are several ways you can avoid filing your taxes late:
Ask for an extension
IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, lets you request an extension for free. To submit this form, you’ll need to estimate your tax liability. The extension is granted automatically, giving you until October 15 to file your return.
Get a loan
If you don’t have the funds to cover your tax bill right away, you can get a loan to pay for it. For instance, you could get a cash advance if you think your tax refund will arrive soon. And an installment loan may be a good choice for more complicated delays, since they have a longer repayment period. If the interest on the loan is less than the penalty you’ll owe on your taxes, this option could be worth it.
Collect and organize your documents ahead of time
Be proactive about collecting any documents needed to file your taxes. Make a list of everything you need, then reach out to any companies or agencies responsible for sending you those if you haven’t received them in a reasonable timeframe.
Set a personal deadline
The IRS deadline might be April 18 this year, but you should set your deadline earlier than that if possible. Getting your taxes done early gives you peace of mind, and your refund will come sooner if you’re getting one.
The bottom line
Filing taxes can be complex, so you should always start as early as possible. Fortunately, you have a few options for getting your return in on time and avoiding those penalties. Whether you get a loan to cover your tax bill or submit IRS Form 4868, getting your extension is relatively easy.
That said, if you think you will need more time to file your tax return, request your extension as soon as possible. This will reduce the chances of running into issues as the deadline approaches, helping you avoid IRS penalties.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.