What happens if I file my taxes late?

Don't panic! You're going to be alright.

If you are worried you won't have your 2017 taxes ready for April 17th, 2018, the first thing you can do is file an extension. Individual filers can e-file their extension form for free. Doing so will automatically get you a 6 month extension to file.

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It's important to understand that even if you apply for an extension, that extension is for the filing of taxes, not the payment. Unpaid taxes will accrue late payment penalties beginning after April 17th.

As such, it's best to make an estimated tax payment that you believe will cover the taxes you owe when applying for an extension. If you've overpaid, you'll receive that money back in the form of a refund. If you made accurate quarterly estimated-tax payments throughout the year, you're unlikely to owe more in taxes.

IRS penalties vary depending on your circumstances, so it’s important not to assume that the IRS late penalties will be the only penalties you pay when you file late.

That being said, the IRS penalty for filing late is an additional fee in the amount of 5% of tax due for every month that you don’t file your income tax return, up to 25%. The clock on the penalty starts ticking the day that your tax return is due (either April 17th, or October 17th if you filed an extension). However, if your return is at least 60 days late, the minimum penalty is either $205 or 100% of the amount of tax due, whichever is smaller. You may see a similar penalty for your state return, depending on your state.

The penalty for paying late is .5% of tax due for every month that you don’t file, up to 25%. Both the late filing and late payment penalties can be applied at the same time.

On top of these penalties, the IRS will also charge interest on the tax that you owe. Interest starts accruing on the due date of your return, and is generally the same as the federal short-term interest rate plus 3%.

If you do owe late taxes and penalties you can't afford we still recommend filing by the deadline (or applying for an extension). IRS agents are able to work with you to setup a flexible payment arrangement. Possible solutions include short-term extensions to pay, installment agreements, and offers in compromise.

While simply not filing might seem like a good idea today, you'll be better off in the long run if you file an extension, make an estimated payment you can afford, and contact the IRS to setup a plan for success. We'll be here to help with advice along the way!