Waiting too long to pay your taxes can lead to large financial losses.
It’s tax season and life isn’t exactly easy for the estimated 165.7 million US individual tax returns (2022 figures) that they comply with their civic obligations before the Internal Revenue Service.
Of that estimated number, about 30% will put off filing their taxes this year, with the majority of that number saying their taxes were “too complicated and stressful.”according to a new study by IPX1031.
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“Others avoid the task because it is too time consuming or they don’t think they will get a refund,” the IPX study reported.
Many Americans put off their taxes because they’d rather do basically anything else than input tax form data into their tax software.
“They find it boring or tedious,” said Logan Allec, founder and CPA of Choice Tax Relief. “In addition, the process can also be confusing for many people.”
Other Americans may have gone through a traumatic life experience, causing them to fall behind on their taxes.
“For some of these people, the problem has been multiplying for several years,” Allec told TheStreet. “For whatever reason, there’s not much advantage in putting off until tomorrow what you could do today.”
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Waiting to file taxes is a financial risk
There’s a downside to filing your taxes at the last minute or late, say tax experts.
“If you’re expecting a refund, postponing your tax return just prolongs the time before your refund hits your pocket,” Allec said. “You could be putting money to work for you by paying off debt or investing in the stock market. Every day you wait to file your taxes and get that refund is another day your money isn’t working for you.”
Also, if you end up owing the IRS, waiting until the last minute could mean missing your tax payment before the due date.
That is a big problem.
“Paying your tax liability after the due date results in a non-payment penalty in the amount of 0.5% of your unpaid tax liability for a month or part of a month,” Allec noted. “This fine reaches a maximum of 25% of its responsibility.”
If you wait until after the due date (or the extended due date, if you requested an extension), you will be assessed a heavier non-payment penalty.
“That’s equal to 5% of your unpaid tax liability for the month or part of the month that your return hasn’t been filed yet,” Allec added. “This fine reaches a maximum of 25% of its responsibility.”
Getting ahead of your tax game
To avoid that scenario, start with your taxes and start preparing right away.
“People need to organize themselves and their various cash receipts and cash disbursements that they earn or incur,” said Ageras CPA Giuseppa Maceri. “Set up a binder, either electronic or physical, and keep proper records throughout the year.”
Working with a professional tax specialist should speed things up, but you must first choose the right tax accountant.
“Look for a trainer who is available and preferably available year-round,” Maceri said. “Ask the tax preparer if he or she offers an IRS e-file option. If someone files electronically and chooses direct deposit, they are likely to get a refund in less than 21 days.”
“Also, make sure any tax refund goes directly to a bank account; do not trust the postal mail,” added Maceri.
It’s worth noting that 51% of respondents to the IPX1031 study said they have investments. “Among them, 42% say they get help from online services to file taxes on their investments, while 29% report doing it on their own,” the report said.
What to do if you have to file a late return
If you can’t file your taxes before the IRS deadline, there are options.
“Anyone, regardless of income, can use IRS Free File on www.irs.gov., Maceri said. “To receive an automatic extension of six months to file the return, you must file Form 4868. Just keep in mind that this does not exempt anyone from their tax liability.”
In that scenario, the IRS will automatically process an extension when a taxpayer selects Form 4868 and makes a full or partial payment of federal taxes by the April 18 due date using their Online Account, Direct Pay, Electronic Tax System. Federal Tax Payment (EFTPS), or a debit, credit card or digital wallet.
“If someone does not file their taxes on time, they will incur a penalty for not filing, which is a percentage of the taxes not paid on time,” Maceri said. “The penalty is calculated based on the late filing of the return by this person or business and based on the amount of tax not paid as of the original payment due date.”
“However, all this can be avoided with proper planning,” he added.
