To avoid hefty fees and bad credit, it pays to file
your taxes on time
Tax Day is April 17, just a month away. If you are smart you have already filed your taxes, or you are in the process of preparing them to be filed. You should avoid filing late. If you owe money on your taxes and don’t file by the April 17 deadline, you will be charged a failure-to-file penalty by the IRS which is normally 5% of the unpaid taxes. You will be charged the 5% late fee every month your taxes are not paid, up to 25 percent of your total amount due.
If you do not pay the full amount of taxes that you owe by Tax Day deadline, you will also be charged a failure-to-pay penalty of .5-1% of your unpaid taxes. The maximum amount of penalty fees you can be charged is 5 percent. However, your fees accrue interest as well. So, every month you fail to file and pay your taxes, you are adding to your balance due.
Say you owe $1,000 in taxes this year. If you don’t file your taxes by the deadline, you will be charged 5% penalty fee which is $50 (1,000 x .05 = 50). Your balance due then becomes $1,050. If you do not file your taxes a month later, you will be charged another 5% which is $52.50 (1,050 x .05). The interest will accrue and be added to your principle every month up to $250 (1,000 x .25).
The same example applies if you file but fail to pay by the deadline. You will be charged .5 to 1% every month, with interest accruing on your fees. For more information on penalties, view this IRS fact sheet. Worse, if you fail to pay for an extended time, the IRS can file a Notice of Federal Tax Lien. This public record lets creditors know they have priority to your property. This can have major repercussions on your credit score.
You have tax options
You still have time to file and you have options if you cannot pay all of your taxes now. The best option if you need help is to contact the IRS. They will work with you and paying what you can now is a far better choice than doing nothing. Most people can file for free with IRS Free File. The irs.gov website also offers tools and advice to get your taxes filed on time.
If you aren’t able to file your taxes on time, file for a free extension by April 17. You will then have until October 15, 2018 to file. Note, you still have to pay 90% of your taxes due with your extension request. The remaining taxes you owe are due by the October 15 deadline. If you can’t pay now, you can apply for a payment plan. The IRS also has options for people who are unable to meet payments. Check out their website and contact them for options.
Make the Most of your Refund
You worked hard for your refund now let your money work for you. Using your money wisely now will pay off down the road. A post by the Intuit Mint blog lists the 10 best ways to use your tax return. Here are their ideas, straight from the post:
- Pay down existing debt
- Build your emergency fund.
- Fund your individual retirement account
- Consider buying flood insurance or increasing liability coverage
- Start a savings account for something big
- Make home improvements
- Donate to charity
- Replace an inefficient appliance
- Invest in yourself
Increasing HOPE has a passion to promote financial freedom for families through education and training. Your federal taxes are a small part of a big financial picture. If you need help understanding the big picture, contact us and let’s get started on your path to financial emp