At Keeper, we get it - you’re out there hustling, but you know you’ve got to get this done. Take a deep breath, because it will BE OKAY.
The tax deadline is usually April 15th for the previous calendar year. You were busy and it passed by… Here’s the deal on what happens next and what to do.
Every month you wait will add to your penalty
Here’s what the IRS can penalize you for and how much:
- Failure to file - Penalty of 5% of tax due each month, to a max of 25% at 5 months
- Failure to pay - Penalty of 0.5% each month, to a max of 25% at 50 months
Note: if you owe both of these penalties, the monthly max is capped at 5%
Not filing is TEN times worse than not paying.
Let’s do an example: Mirren owes $10,000. She files her taxes 2 months late, and must pay a penalty of 2*0.05 on top of her $10,000, for a total of $1,000! If she had filed on time but waited two months to pay, her penalty would be just $100 (10,000*2*0.005). Good thing she paid at 60 days - wait longer than that and your minimum penalty is $215!
On top of that, there’s also interest due on the amount you owe as well. Think of it like a bank loan; a bank lends you money and charges interest for the money as the “price” of letting you use its money until you pay it back. Similarly, if you owe tax to the IRS, it is, in a sense, lending it to you and it wants compensation for that.
Let’s go back to Mirren’s taxes due. For 2019, the IRS will charge a 6% annual interest rate. Mirren is paying 60 days late, so for each day she owes another $1.64 in interest - another $99!
(For you to quickly calculate your interest, take 0.000164, multiply times the amount owed and again for the number of days late: 0.000164*10,000*60 = $98.4 for Mirren’s interest.)
How to do a late tax filing
The first step is definitely to get your taxes filed, next is paid. If you need a payment plan, the IRS has a program for that, and if your plan is under 120 days, there is no set-up fee.
If you are filing late and can tack on an extra 5% for each month you are late to file, go ahead and do so.
If the IRS figures that you owe more, they will let you know! Keep in mind, it might be a year after you file, or more!
DO open any IRS snail mail and keep copies of any letters you receive (scans or photos are great ways to save documents that arrive in dead tree form). It’s no big deal to let the IRS figure the extra penalties for you; it’s their job, right?
Other tips to stay on top of taxes in the future
- Keep your address up-to-date with the IRS.
- As a 1099 contractor, you will likely also owe quarterly taxes. Pay these to avoid a penalty and to make sure that your end-of-year tax bill is lower.
- If you know you are going to be late to get it all done, file for an extension BEFORE the tax deadline.
- Don’t forget to claim all of your tax write-offs!
- Not sure if you'll owe money on taxes? Use our free online tool to calculate your quarterly taxes… This is helpful even if you have a W2 job along with your 1099 side gigs.