We know we’re not alone when we say the last 2 years have been difficult. Between worrying about catching a deathly virus, keeping a job, paying bills, depression, not getting into a war, and so many other hardships, it’s been rough. Add on filing your taxes, an annual ritual for people with an income, and you might start spinning.
I recently read a study on 2021 taxes — it was a bleak year for many, as paying money to the IRS without knowing about job security or where the money would come from was a bit of an eyesore. For others who were unemployed, they got off the hook for filing since they didn’t make an income in 2020.
But what about those that were too paralyzed by the thought of owing the government that they didn’t file at all? What about those that still haven’t filed? Are there consequences? Can they still file? To answer all of your questions, I investigated.
Essentially 2 things can happen. If you are anticipating a refund, the IRS will not contact you. “If taxpayers are due a refund, there is no penalty if they file a late tax return,” the IRS website states. Typically, it takes 21 days for the IRS to receive a refund. So although I encourage you to file as soon as you can, you will not be reprimanded if you expect a refund.
On the other hand, if you owe taxes from a previous year or the current filing, a late file can be a bit tough. Most accountants will warn that filing late is often worse than paying late. There is a penalty for filing late, which amounts to 5% of the unpaid taxes for every month you don’t file, maxed out at 25% of owed taxes.
Sadly, if you file and pay your taxes past the deadline, you will receive 2 penalty fees. For late payments, it will cost you 0.5% every month you have a balance — capped at 25%. If you can’t stick to the payment date, you can set up an Installment Agreement with the IRS and pay a small portion each month. Sadly, interest will still apply on late payments.
When in doubt and low on money, pick up the phone and call the IRS to see if they can delay collection or reassess your tax debt. Explain your current situation to see if you can get any grace. Likewise, if you owe a significant amount of money and have a lot of other debt, there are still options. Programs like the Offer in Compromise is where you can suggest to the IRS what you can pay to pay off your tax debt.
If you’re a freelancer, it’s time to start charging a retainer.