If you missed the tax deadline (which was April 18, 2023, for most people and businesses), you might be facing penalties from the IRS. However, if you haven't filed your 2022 federal tax return or requested an extension by April 18, don't panic, there are still options. You can still complete your Form 1040 and pay your taxes as soon as possible if you owe the IRS money. It's important to act quickly after missing the tax deadline to prevent the penalties and interest you may owe from piling up.
It's worth noting that some people or businesses might have extra time to file their tax returns and pay any taxes due. For example, filing and payment deadlines are later for individuals and businesses directly impacted by natural disasters and storms in at least eight states. Similarly, Americans living overseas and military personnel sometimes have later tax filing and payment deadlines. However, if these special rules don't apply to you, it's time to stop procrastinating and take action.
Free File for Individuals
There are still options available to file for free depending on your income, if you missed the April 18 deadline for filing your tax return. The IRS's Free File program allows individuals with a 2022 federal adjusted gross income of $73,000 or less to file their tax returns for free until October 16.
For those with higher incomes that don't qualify for the Free File program, the IRS offers Free File Fillable Forms. These electronic versions of paper tax forms provide automatic calculations for some of the math. Free File Fillable Forms are also available to use until October 16.
Missed the Tax Deadline- How Much Will it Cost You?
One of the main consequences of missing the tax deadline is that interest begins accruing on any unpaid balance and compounds daily from April 18 until the balance is paid in full. The interest rate on underpayments of tax varies each quarter, with a current rate of 7% for the first quarter of 2023.
In addition to the interest charged, there are also separate penalties for late filing and late payment. The late-filing penalty is 5% of the tax due for each month (or part of a month) that your return is late, including any extensions granted. If your return is over 60 days late, the minimum penalty is either $450 or the balance of the tax due on your return, whichever is smaller. The maximum penalty is 25% of your unpaid taxes.
The late-payment penalty is 0.5% of the unpaid balance for each month (or part of a month) that the tax isn't paid. The penalty increases to 1% ten days after the IRS issues a final notice of intent to levy or seize property. However, if an installment agreement is in effect, the penalty decreases to 0.25% for each month, or part of a month. Overall, the penalty can reach as high as 25% of the unpaid tax.
It's important to note that the longer you wait to file and pay, the higher the penalties will grow. When making a payment, the IRS will first apply it to the tax owed, then to any penalties, and finally to any interest. Any penalty that appears on your bill is typically the total amount up to the date of the notice, not the penalty amount charged monthly.
Don't let the penalties and interest continue to accumulate; act quickly after missing the tax deadline to minimize the damage.
As a cannabis business owner, you already have to deal with many taxes, fees, and costs in this highly regulated industry. The last thing you want is to incur additional penalties and interest by missing important tax deadlines. But don't worry, Redbud Advisors is here to help you navigate the complex landscape of cannabis taxes and ensure that you stay compliant. Trust us to take care of your tax needs, so you can focus on running and growing your business.
Avoiding Penalties for Missing the Tax Deadline
Missing the tax deadline is a common occurrence, but it can result in IRS penalties that can be costly. However, certain reasons for missing the deadline may be considered acceptable by the IRS. Natural disasters, serious illness, and similar circumstances are some examples of acceptable reasons for missing the tax deadline.
It is important to note that a lack of funds is not considered a sufficient reason for failing to file or pay your federal income taxes on time. However, if your financial situation is due to an acceptable reason, the IRS may consider waiving the penalty if you provide a statement explaining your situation.
If you are expecting a tax refund, there is no need to worry about filing a late return as the IRS does not penalize taxpayers for late returns that result in refunds.
For those who are fined for missing the tax filing and payment deadline, penalty relief may be available from the IRS. If you receive a penalty, you can contact the IRS to explain your situation and request relief. The IRS may consider waiving the penalty if you have a valid reason, such as a house fire or serious illness.
Furthermore, if you have a history of filing and paying on time, you may be eligible for relief under the IRS's "first-time penalty abatement" policy. This policy typically requires that you have filed and paid your taxes on time for the past three years and that you satisfy other requirements.
Unable to Pay Your Taxes?
If you are unable to pay your taxes and missed the deadline for filing, the IRS has a couple of options that may help you. One such option is to go online and request a payment plan that allows you to pay the tax you owe over time.
If your combined tax, penalties, and interest owed is less than $100,000, you can opt for short-term online plans, which offer payment periods of up to 180 days. On the other hand, longer-term online payment plans are available for total amounts owed less than $50,000. However, depending on your income, there may be a set-up fee for long-term online payment plans.
If you don't qualify for an online payment plan, you can request an installment agreement by filing Form 9465. The IRS typically responds to installment agreement requests within 30 days, and depending on your income, a set-up fee may apply if your agreement is approved.
Alternatively, you can request an offer in compromise (OIC). Under this option, you agree to pay a reduced amount of tax, but before the IRS considers an OIC, you must file all tax returns due and make any estimated tax payments required for the current year. The IRS generally approves an OIC if it believes the amount you offer is the most it can reasonably expect to collect.
If you are facing financial hardship, the IRS may also be able to temporarily suspend the collection of your tax debt. This means that your tax debt does not go away, and penalties and interest continue to accrue until the debt is paid in full.
State Tax Return
Don't forget about your state tax return (unless you live in a state with no income tax). The due date for most state tax returns is April 18. Typically state tax returns should be filed at the same time federal tax returns are being filed.
The IRS tax deadline is hard and fast. However, an extension can be requested as a business or an individual by the deadline giving until October 16 to complete your tax return without any penalties or fines. Even if you fail to file your return or request an extension by the deadline you can quickly remedy this by swiftly completing your tax return, we recommend enlisting the help of a tax professional at this point and walking away with little damage.
Contact Redbud Advisors to learn how we can help cannabis business owners avoid the stress of tax season by keeping them compliant with the IRS all year!