I just realized I completely forgot to file my taxes last year. What happens now? Am I going to get in trouble with the IRS?
Do not panic. The IRS is much more interested in getting your money than punishing you. File as soon as possible because the penalties get worse the longer you wait. Here is what you are looking at. If you owe taxes, the failure-to-file penalty is 5% of unpaid taxes per month, capped at 25%. The failure-to-pay penalty is 0.5% per month, plus interest at the current federal rate (about 7-8% annually). So if you owe $3,000 and file 6 months late, you would owe about $900 in failure-to-file penalties plus about $90 in failure-to-pay penalties plus interest. If you are owed a refund, there is actually no penalty for filing late. You have 3 years from the original due date to claim your refund before you lose it. File now either way. If you owe and cannot pay the full amount, file anyway because the failure-to-file penalty is 10 times higher than the failure-to-pay penalty. You can set up a payment plan with the IRS directly on their website for amounts under $50,000. Monthly installment plans are very common and the IRS approves most of them automatically.
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