In a perfect world, every taxpayer would file his or her returns on time and have plenty of money to pay any taxes due. Unfortunately, that's not always the case — particularly in tough economic times. So what should you do if you find yourself in a situation in which you have to file your taxes late? Here are some tips to help you make the best of the situation.
- Ask for an extension: If you can't file your individual return by April 15, the best option may be to ask for an extension. The IRS generally grants six-month extensions to individuals who request additional time to file returns that are due on April 15. However, it's important to remember that an extension does not mean you are exempt from penalties for being late if you owe money to the IRS and pay later.
- File as soon as possible: It makes sense to file your taxes as soon as you possibly can, even if you are late and have not asked for an extension. Why? If you the IRS owes you a return, you can lose your right to receive it if you don't file within three years. Also, if you run your own business and don't properly report your income, you won't get credit that goes toward future Social Security and disability benefits.
- Work with the IRS: Generally, the IRS is willing to work with taxpayers who are making a good-faith effort to pay their taxes. If you owe more than you can pay, you may be able to secure an installment agreement. In some cases, the IRS may even be willing to accept a settlement for less money than you actually owe.
- Get the information you need to file: Sometimes taxpayers lose track of the document they need to file returns, such as their W-2s or 1099 forms. If you misplaced these documents, which are essential for filing, and are unable to obtain copies from the employer or client who originally issues them, the IRS may be able to help. The agency runs programs to reconcile reported income and employer disbursements. This may mean they can help you get the information you need from the income paid out that your employer reported. However, these reconciliation reports are not available until August, so if you can possibly obtain the documents you need from your employer, that's the best route.
Obviously, it's important to take care of your taxes to avoid criminal prosecution. The IRS may actually be an ally in this effort; the agency has many outreach programs designed to increase voluntary participation in the tax filing process.
The most important thing is to not ignore the problem if you haven't filed your taxes. The situation won't resolve itself, though it may take a while for a failure to comply to generate demands to file from the IRS. By taking a proactive stance and making a good-faith effort to comply, you'll be in a much better position.
Find out more about Personal Taxes