Well, I launched my new MoneyMaestra website on April 15th, which is normally tax day for the United States. The IRS is also where I began my federal career. Oh, I learned so much at 51 SW 1st Avenue, Suite 700, in downtown Miami- the home of the IRS Collections Department. I was an IRS Revenue Officer for 4.5 years before I became a Federal Agent. This is the first time I can remember the IRS giving a three-month automatic extension to file and pay your federal income taxes. The new due date July 15, 2020, is upon us- only one week to go! The extension was a gift from the IRS, due to COVID-19. The gift is almost over! This post is similar to MoneyMaestra’s April 15th post because the information below is very important to know. There are consequences for not filing and paying your federal income tax return on time.
In order to take full advantage of the extension, let’s talk about what it means and how late filing and paying of federal income taxes works.
Failure to File Penalty
Normally, on April 15th, federal income taxes are due to be filed and paid, unless April 15th falls on a Saturday, Sunday, or legal holiday, then the date is delayed to the next business day. What is important to remember is that taxes are due to be filed and paid on April 15th (and for 2020, July 15th). If you file your federal income tax return timely but owe money to the IRS and do not pay, you will be charged interest and penalties on the amount of tax owed, starting from the due date of the return. It is important to file timely though, even if you don’t have the money to pay the taxes owed, because the IRS also charges a failure to file penalty of 5% of the tax owed for each month for up to five months, for a possible failure to file penalty total of 25% of tax owed- just for not filing your taxes timely! So always file timely and remember if you do get an extension to file it is only an extension to file, not an extension to pay.
Failure to Pay Penalty
The IRS also charges a failure to pay penalty of one-half of one percent for each month, or part of a month, up to 25% of the unpaid tax owed from the due date of the return (normally April 15th) until the tax is paid in full. The one-half percent increases to one percent if the tax due remains unpaid 10 days after the IRS issues a notice of intent to levy property. If you file your return timely and request an IRS installment payment, the one-half percent failure to pay penalty decreases to one-quarter of one percent for any month in which an installment agreement is in effect. So there are options but the best option is to pay your taxes timely.
One more thing we can’t forget, the IRS also charges interest on unpaid tax due, the current 2020 interest rate the IRS is charging is 5% and it is compounded daily. Even without doing the math- it is easy to understand how an unpaid tax bill can grow significantly with added penalties and interest.
Taking Charge of Your Taxes & Cleaning Your Financial House
The key to avoiding throwing away money through penalties and interest is to file and pay your federal income taxes on time. Many people dread the April 15th deadline but this year we received a free three-month extension. That extension only helps if you make it work for you. So during the past three months, I hope that you were able to come up with a plan to file and pay your taxes timely on or before July 15th. I know that we are in unprecedented times and many people are struggling financially but the first step in moving forward in your financial life is to face it head on. So how about starting to really look at your money situation while we are still in this unprecedented time of COVID-19. Most of us have more time on our hands than we previously did- so besides cleaning our physical houses, let’s also clean up our “Financial Houses.”
Your Relationship with Money
MoneyMaestra was created because I believe Financial Responsibility creates Financial Freedom and I want to share my knowledge and experience to help people create Financial Freedom in their lives. MoneyMaestra can help you Budget Like A Boss, Lean into the Joy of Money, Unpack your #MoneyStory, to determine if it is holding you back, and learn that Money is a Neutral– we give it the charge. Money can be used as a tool to create the life you desire. You and your money are in a relationship- so let’s make it a healthy one.
Susan, The MoneyMaestra