With the COVID-19 outbreak on a lot of people's minds, it's easy to see how taxes may have fallen by the wayside. But if you missed the recent July 15 filing deadline, you may need to take action sooner rather than later to avoid serious repercussions.
If you missed the deadline and are due a refund
If you overpaid the IRS in 2019 and are therefore due a refund, here's some good news: There's no penalty for filing your tax return late. But the longer you delay, the more you'll need to wait to get your money.
Normally, tax refunds are issued within 21 days of receipt of an electronic return. In some cases, you can further expedite your refund by signing up to receive it via direct deposit. A lot of people are having a hard time making ends meet due to the COVID-19 crisis, so if that's the situation you're in, it pays to file your taxes as quickly as possible to get your money.
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If you missed the deadline and owe the IRS money
If you underpaid your taxes in 2019 and now owe the IRS a lump sum, being late with your tax return could have serious consequences. First, you'll face a failure to file penalty that amount to 5% of your unpaid tax bill for each month or partial month your return is late, up to a total of 25%. What this means is that if you were to file your taxes tomorrow, you'd still face a 5% penalty for being late with your return, but you'd at least minimize the damage by acting quickly. Keep in mind, too, that interest will accrue on your unpaid tax debt until you fork it over, so that's another reason to get moving.
Now if you owe the IRS a sum you can't come up with on the spot, you do have the option to sign up for an installment agreement to pay that balance off over time. This won't help you avoid interest and penalties on your unpaid taxes, but it will stop the IRS from trying to garnish your wages, which is an option the agency can exercise if you owe money on an old tax return and haven't made any effort to work out a payment arrangement.
Another option, if you really owe the IRS a lot of money, is to pursue an offer in compromise where the agency agrees to accept a lower amount than the sum you owe. But before you get too excited about that option, you'll need to prove that your total tax debt truly isn't payable to be let off the hook. And also, your offer will need to be reasonable. If you owe the IRS $15,000, offering to pay $2,000 of that probably won't fly. In fact, offers in compromise are often rejected, so rather than making that your backup plan, you're generally better off figuring out how to pay the IRS what you owe over time under an installment agreement.
