April 15th, better known as "Tax Day," is the deadline the Internal Revenue Service (IRS) gives taxpayers every year to submit their tax returns—and it's right around the corner.
But what happens if, for whatever reason, you don't file your taxes? To find out the answer, Reader's Digest spoke to tax experts.
Here are the three main consequences you might face if you miss the IRS's deadline.
You'll owe a late-filing penalty
If you file your tax return more than 60 days after the due date or extended due date, you may face a failure-to-file penalty, the minimum of which is either $210 or 100 percent of the unpaid tax, whichever is smaller, plus interest on the amount you owe, explains Glenda Hassan, CPA and founder of Money Matters, a daily money management service. You can potentially avoid that fee by filing for a six-month extension by April 15, she explains. But understand that filing an extension only means you get a new due date for the actual paperwork associated with your taxes; you're still obligated to pay the majority of your tax bill from the previous year by April 15 of the current year. If you don't have the funds in full, pay as much as you can to the IRS now and before October 15, advises Echo Huang, CFA, CFP®, CPA, and president and founder of Echo Wealth Management.
You'll owe a late-payment penalty
In addition to a late-filing penalty, you may also be assessed a late-payment penalty. This is generally 0.5 percent of your unpaid taxes each month, but it can be as high as a maximum of 25 percent.
"If both the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5 percent per month," Huang explains. However, if you request an extension by April 15 and pay at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty—provided you pay the remaining balance by the extended due date on October 15, 2019.
You'll owe interest expense
Another problem you have to worry about when you don't file your taxes is interest, which is compounded daily starting on April 15, whether your file an extension or not. The current interest rate the IRS charges is 6 percent, though that rate is adjusted, for better or worse, on a quarterly basis, Hassan says. That's why it's important to pay as much as you can by April 15, and that you continue to do so until your full tax bill is paid, our experts explain.
How much could late filing cost you?
To give you an example of how much extra you would have to pay for filing your taxes late, consider that if you file your tax returns five years after they are due (in 2019 that would mean you're filing for 2014) and originally owed $1,000 in taxes for that year, the penalties and interest you would have to pay now would be around an additional $425 on top of the original $1,000, explains Hassan. The first five months are assessed a 5 percent penalty and the remaining 55 months are at a 25 percent penalty, plus interest.
However, if you are owed a tax refund—and here's why you might not be getting one this year—you aren't subject to penalties and interest. That said delaying your filing also delays when you'll receive your refund, and there's no reason to leave money in Uncle Sam's pocket, Huang explains.
What happens if you can't pay your taxes?
If you know you can't pay your taxes, reach out to the IRS and ask for a payment plan—short or long term—when you file your taxes. This may help to reduce penalties and interest on any penalties you might be charged. "You can't hide from the IRS," says Hassan. "It's always better to be up front, be prepared, and know your options," she says. "Plus, when the taxpayer takes the first step, the IRS is more likely to be lenient."
Even after you file your taxes, you may still get audited. That's why you'll want to keep these 11 tax-related documents somewhere safe for perpetuity.