We all love tax season, right? Well maybe you do if you are expecting things to be easy and you are counting on a nice tax refund. However, I think it is safe to say that many of us dread this time of year, and even though we know that our taxes are due at the same time every year, we are still unprepared. We typically put off doing our taxes because they involve a lot of work and usually result in bad news such as us owing the government a huge lump sum of our hard earned cash.
By April 15th US citizens need to have two things done. They need to have their tax return filed and they need to submit their payment for taxes that they owe.
Putting off doing your tax return, be it personal or business, can be quite risky.
What Can Happen If You File Your Taxes Late?
If you file your taxes late in the US you run the risk of incurring late fees.
The interesting thing is that the penalty for filing a late tax return is typically more than the penalty for not paying what you owe on time.
Not Filing On Time
If you do not file on time the penalty is quite significant. You are possibly looking at a 5% penalty. The amount is calculated based on how much you owe in taxes. The penalty is applied on April 16th and continues to accrue until you pay. The only good news is that it will not exceed 25% of what you owe. Not that I really think that is good news, though.
Not Paying On Time
The penalty for not paying on time amounts to 0.5% of what you owe the IRS. And for every month that you are late the amount continues to grow. If you find that you owe a large amount, and are not able to pay it off in full, you can send in as much money as you can and speak to the IRS about a monthly payment plan to pay off the balance.
A Last Minute Solution
For those of you that are running late in filing your tax returns, there is a last minute solution. You can potentially avoid late filing penalties if you apply for a tax extension. It is quick and easy to file your extension online. Once granted you will have an additional 6 months to prepare your tax return and send it to the IRS. Understand though, that the request for an extension only applies to filing your tax return. You are still required to pay any taxes owed on time.
Prepare Yourself for Next Year
Dealing with your taxes can be quite stressful. If you applied for an extension this year quickly get to work on getting your taxes filed as soon as possible.
And, immediately begin preparing yourself for next year. Organize your financial documents at the end of every month using file folders, or scan your receipts into your computer. Setup a spreadsheet on your computer with categories and dates and input the money you earned and the money you spent. Make sure to include every expense that you are able to deduct from your income.
As well, if you owed the government money this year look for ways to do things differently in an effort to minimize what you will owe next year. If that is not possible, then you better make sure that you are putting money aside each month so that you will be able to pay on time next year.
If you do not have the time to prepare your taxes, or you find it too complicated to do, begin looking for an Accountant to help you out. The fees you will pay for their services will be far less than the late filing penalties.