Next to getting shot at and missed, there is no experience quite as satisfying as getting an income tax refund, according to humorist, F. J. Raymond. Having a big tax bill staring you in the face is not so satisfying, and you might be tempted to put off filing your tax return until the very last minute. You might even be tempted to not file at all. That would be a big mistake. If you have an unfiled tax return and you owe the government money, you need to be proactive in taking care of that situation.
Filing Late with a Tax Refund Due
You don't have to worry about filing late if you are due a tax refund. The reason is simple: the government has your money and it gets to use it interest-free until you claim it. There is no tax penalty for not filing a tax refund on time when you have a refund due. Well, there is one catch -- if you don't file your return within the three-year statute of limitations, you will forfeit your refund.
Request an Extension
Your tax return is typically due by April 15, although this date may be extended a few days in years when it falls on a holiday or on the weekend. If you need more time to prepare your tax return, you can file IRS Form 4868: Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This gives you an automatic six-month extension to file your tax return. This does not give you additional time to pay any taxes you owe, but it will prevent the additional cost of late-filing penalties.
Late Filing vs. Late Paying
Your federal income tax obligation will not go away simply because you don't file your tax return. You actually will be worse off by not filing a return than for not paying your taxes. The penalty for late tax payments is 0.5 percent of the tax owed for each month that you are late up to a maximum of 25 percent of the taxes due. The late filing penalty is 4.5 percent of the taxes due per month for the first five months. You are much better off filing your tax return as soon as possible, even if you don't have the money to pay your taxes in full.
The Internal Revenue Service is serious about collecting taxes. If you don't file an income tax return, the agency may file one for you and it probably won't take into consideration any legitimate deductions you would otherwise be able to claim. The IRS may levy your bank account or your wages and put a tax lien on your home or other property. You don't want that to happen.
Contact the IRS as soon as possible about your unfiled taxes. File a return, even if the IRS has already filed one for you, to take advantage of any additional deductions or credits for which you may qualify. Request a payment plan or a compromise settlement. The IRS will work with you to set up an installment plan that allows you to pay your tax debt in a timely manner. You will still be charged interest on the unpaid balance, so you will benefit by paying it off as soon as possible.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.