You Missed the IRS Tax Deadline....Now What?
By Milla Liberson - President and Business Accountant with OnPoint Business Solutions, Inc.
You've been meaning to get your taxes filed on time this year, but with all the pressures of running a business, once again you missed the deadline. If you missed filing your estimated quarterly taxes or your annual income tax return....relax! You can still fix the situation, but please don't wait too much longer. Remember that missing important tax due dates accrues penalties, which if left unchecked, can multiply into enormous financial burdens.
Around tax deadlines, we see many stressed entrepreneurs walking in last minute hoping for immediate help. Unfortunately, a busy accounting office must often turn away such individuals because our job is to first serve currents. If you find yourself in this situation, here are some things to keep in mind:
♦ Financial Punishments:
When you miss tax deadline, IRS considers this a act of non-compliance which carries a punishment of severe penalties and interest. Some of these include:
Failure to File Penalty: If you fail to file your return on time, the IRS will assess a 5% monthly penalty of the balance you owe, up to 25% maximum. However, if you can prove to the IRS there was a valid reason for paying late, it may waive this fee.
Failure to Pay Penalty: Even if you filed your tax return but failed to include all taxes owed on the original due date (not the extension date), you will be assessed a monthly 0.5% of your unpaid balance.
Interest Charged: In addition to the penalties, you'll be assessed an interest on any owed tax balance from the due date of the return until the amount is fully paid. The interest rate varies and is determined by the federal short term rate plus 3%.
*** You can reduce or avoid these penalties and interest but you'll have to act fast and prove why you failed to timely file or underpay your tax liability.
♦ How to Fix the Situation:
File Your Tax Return Immediately
Missed IRS deadline is not the end of the world. You can still remedy the situation by filing your tax return ASAP. If you are unsure of the accuracy of all your financial data, it's best to file your return with the information you have. You can later file an amended return to make necessary corrections. If you owe a tax liability, either include a full or a partial payment. Give the IRS a few weeks to process your return and then contact them for a payment arrangement going forward. If your tax liability is over $10,000 contact a tax professional who may offer you options to reduce your tax liability while leaving you enough money to get back on track. But don't wait. The more you procrastinate the more severe your situations becomes.
Apply for an Extension
If you are missing financial data close to the tax deadline, consider filing an extension. You will be granted 6 additional months to submit your return without incurring a late filing penalty. But remember, an extension does NOT give you more time to pay off your tax liability. Any unpaid balance will accrue interest and penalties until it's fully paid. You can file an extension yourself by using Form 4868, which you can find on the IRS website. Or contact a tax professional who will help you file this form. Whichever way you file an application for extension, make sure it's done by April 15th. For Partnerships and S Corporations the due date is March 15th.
Pay Down Your Tax Liability
If your tax return includes tax owed, try to pay as much of your balance as you can. This will reduce future assessments of interest and penalties. To pay your taxes, the IRS accepts credit cards.
Apply for a Payment Plan
If you don't have enough to pay off your entire tax balance, you can request a payment plan from the IRS. Applying for a payment plan is simple but sticking to one may not be. Make sure you're aware of all the requirements before you agree to an installment plan. If your debt is over $10,000 we recommend working with a tax professional. If you violate the terms of the payment plan, the entire agreement between you and the IRS will become null and void and you'll be required to pay off the entire balance.
Get Organized Going Forward
The biggest reason why individuals and businesses miss tax deadlines is due to poor accounting and disorganized paperwork. To avoid this trap going forward, we encourage all business owners to implement an automated accounting system such as QuickBooks online. Not only is this an inexpensive financial management system but it is also easy to use, functional and powerful enough to deliver accurate data on demand. If you are too busy to do the accounting yourself, consider enlisting the help of an in-house bookkeeper or an outsourced accounting service.
♦ In Summary:
Remember to keep an eye on income and income and use reports to assess your profitability. Do this monthly and set aside taxes based on that amount. Pay your taxes quarterly or through payroll. This will mitigate any nasty surprises at the end of the year. Not only that, it will reduce your stress level so you can focus on your life and business.
Looking to get your taxes prepared? Need assistance with tax debt relief, audit resolutions or just general guidance and tax planning, contact our New York City, NY office at 212-920-1184 or schedule an appointment online. Click on Make Appointment.
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Onpoint, NY - The Tax Firm For Businesses