Last Updated: March 11, 2024
Disclaimer: We are not qualified legal or tax professionals and are not giving advice. Always speak with a qualified professional before making any legal or financial decisions.
Every year, countless Americans find themselves facing the April 15th tax deadline with a sense of dread. Whether it's due to unexpected life events, confusion about the tax process, or simply procrastination, failing to file your taxes on time can lead to significant penalties from the IRS.
But what exactly are these penalties, and more importantly, how can you avoid or minimize them if you're running late?
In this post, we'll immerse ourselves into the consequences of late tax filing, break down the penalties you could face, and offer expert advice on steps you can take to navigate this stressful situation. Whether you're a first-time filer or you've been through the process before, understanding these penalties and how to avoid them can save you money and stress.
Don't want to read through? Speak to a debt specialist right now.
There are two different penalties levied depending on if you owe money or if you fail to file your taxes.
In addition to the penalties on both, you are also charged a daily compounded interest on what you owe. This interest rate is set every three months based on the federal short-term interest rate plus three percentage points. At the time of writing, it is 3%. Effectively, it makes your monthly non-payment penalty 0.5025% and the non-filing penalty 5.0025%.
A daily compounded interest means that you pay interest on your interest and penalties. It adds up very quickly! And while the penalties may cap, the interest accrual does not.
Occasionally, the IRS will forgive the penalty if you have a good excuse. They cannot forgive the accrued interest. Call or attach a written explanation with your filing. It may help lessen your payments.
As Benjamin Franklin wrote, “nothing is certain but death and taxes.” You need to file your federal (and state) income taxes by April 15 (May 17 for 2021) or file for an extension by that date. An extension generally gives you until October 15 to file, although varies between 60 days and 180 days. If you owe money, you need to pay it by April 15 (May 17 for 2021) to avoid paying a penalty, regardless if you have filed!
While it requires discipline, the fastest way to get out of debt is to use the debt avalanche method - focus on paying down your highest interest debt first while making minimum payments on everything else. This saves you the most money overall on interest payments.
Most non-profit credit counseling services charge relatively low fees compared to other debt help options. Many charge between $20-$75 to set up a debt management plan, with monthly fees of around $25 after that. Services are often free for those facing financial hardship.
If you're wondering, 'When is debt settlement a good option?' it's important to understand that debt settlement works best for those with unsecured debts such as credit cards, medical bills, or personal loans, owe $7,500 or more, and have a reasonable amount of disposable income to allocate towards settlements after covering living expenses. For a deeper understanding and to discover how it can transform your finances, you can explore our detailed guide on the benefits of debt settlement.
You can try negotiating lower interest rates or payments yourself but may not have as much leverage compared to using a credit counseling agency or debt settlement firm. Their experience and legal resources often result in better outcomes. Still, it doesn't hurt to call and explain your situation.
If you can’t make payments month-to-month, consider contacting creditors anyway to see if they’ll agree to reduce or defer payments temporarily. Non-profit credit counseling agencies also have programs focused on hardship that go beyond minimums. Getting some relief buys you time to improve your situation.
Pacific Debt is an award winning debt settlement company. If you’d like more information on how to get out of debt, we are happy to help. We will explain all your options and help you decide which is the best option for you. We can even refer you to trusted partners who can better meet your needs.
If you have more questions, contact one of our debt specialists today. The initial consultation is free, and our debt experts will explain your options to you.
*Disclaimer: Pacific Debt Relief explicitly states that it is not a credit repair organization, and its program does not aim to improve individuals' credit scores. The information provided here is intended solely for educational purposes, aiding consumers in making informed decisions regarding credit and debt matters. The content does not constitute legal or financial advice. Pacific Debt Relief strongly advises individuals to seek the counsel of qualified professionals before undertaking any legal or financial actions.
BBB Reviews | 4.9/5.0 Rating
750 B Street Suite 1700 San Diego, CA 92101
Mon-Thurs: 6am - 7pm PST
Friday: 6am - 4:30pm PST
Saturday: 7:30am - 4:30pm PST
Phone: (877) 722-3328
Fax: (619) 238-6709
cs@pacificdebt.com
Phone: (833) 865-2028
Fax: (619) 238-6709
inquiries@pacificdebt.com
Phone: (833) 865-2028
Fax: (619) 238-6709
creditorinquiries@pacificdebt.com
California Privacy Policy | Do Not Sell My Personal Information
GLBA Privacy Notice | CDRI Accredited Member
*Please note that all calls with the company may be recorded or monitored for quality assurance and training purposes.
*Your visit to our website may be monitored and recorded from essential 3rd party scripts.
*Clients who make all their monthly program deposits pay approximately 50% of their enrolled balance before fees, or 65% to 85% including fees, over 24 to 48 months (some programs lengths can go higher). Not all clients are able to complete our program for various reasons, including their ability to save sufficient funds. Our estimates are based on prior results, which will vary depending on your specific circumstances. We do not guarantee that your debts will be resolved for a specific amount or percentage or within a specific period of time. We do not assume your debts, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services. We are not a credit repair firm nor do we offer credit repair services. Our service is not available in all states and our fees may vary from state to state. Please contact a tax professional to discuss potential tax consequences of less than full balance debt resolution. Read and understand all program materials prior to enrollment. We are licensed where we engage in business. NMLS # 1250953. The use of our services will likely adversely affect your creditworthiness, may result in you being subject to collections or being sued by creditors or collectors and may increase the outstanding balances of your enrolled accounts due to the accrual of fees and interest. However, negotiated settlements we obtain on your behalf resolve the entire account, including all accrued fees and interest. C.P.D. Reg. No. T.S. 12-03825. Pacific Debt, Inc. is registered with the California DFPI under the CCFPL registration number 01-CCFPL-1250953-3419036.