Most people who are required to file 2021 tax returns will have done so by the official filing due date — Monday, April 18. Or they applied for an extension, giving them until Oct. 17 to file their returns.
But you’re not most people. You did neither.
The question now is: What are the repercussions for you and how can you minimize them?
The answers depend on whether you’re owed a refund or whether you still owe the IRS money for 2021.
You expect a refund
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You may be very confident that the IRS owes you a refund. Let’s hope you’re right about that.
If so, the good news is you will not be subject to a failure-to-file penalty.
But you will have to file eventually if you want the money. And “eventually” means within three years, which is the statute of limitations. After that, you forfeit the right to the refund and to some related tax breaks.
“After the expiration of the three-year period, the refund statute prevents the issuance of a refund check and the application of any credits, including overpayments of estimated or withholding taxes, to other tax years that are underpaid,” the IRS notes.
And if there’s any chance you’re wrong and you actually owe the IRS money, the pressure will be on to file and pay as fast as you can to minimize the financial hit.
You still owe money to the IRS
Failing to file your taxes on time and failing to pay what you owe on time are two separate violations. Each comes with its own penalty. So failing to do both can get pricey, especially since interest will accrue on both your outstanding tax balance as well as any penalties applied.
The heaviest of the two penalties is failure to file. Missing the April 18 deadline means the IRS could slap you with a penalty equal to 5% of the unpaid tax you owe for each month or part of a month that your return is late. That penalty is capped at 25%. So if you wait five or more months to file and originally owed an additional $5,000 in taxes, you will have to pay an additional $1,250 thanks to the penalty.
Most people who are required to file 2021 tax returns will have done so by the official filing due date — Monday, April 18. Or they applied for an extension, giving them until October 17 to file their returns.
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But if you only owe $1,000, you will end up paying more than the 25% cap because the IRS imposes a minimum penalty of $435 or 100% of your tax due, whichever is less. In other words, instead of owing an additional $250, you’d owe $435 if you wait five or more months to file.
On top of that, you also may be subject to a late payment penalty equal to 0.5% on your outstanding balance for every month or part of a month that you’re late. It, too, caps out at 25% of your outstanding balance. So if you owe $1,000 and don’t pay it for six months, you could owe another $30 ($5 a month for six months). If you delay payment longer, you would cap out at a maximum of $250.
How to minimize the financial hit
While it may be tempting to think you can retroactively apply for an extension to file after April 18, that’s a no-go.
“If your return has a balance due, after April 18 your return is delinquent, and the failure-to-file and failure-to-pay penalties apply. Interest also applies,” said Kathy Pickering, chief tax officer at H&R Block.
The same goes if you manage to file your return and pay what you owe shortly after April 18. But at least doing that will keep what you owe in penalties and interest to a minimum.
“Filing a few days after April 18 doesn’t avert the penalty altogether. However, the penalty is computed for each month or part of a month that the return is delinquent so filing as close as possible to April 18 certainly minimizes the damage,” Pickering said.
There is one scenario in which the IRS may be willing to waive the penalties altogether: If you attach a statement to your return whenever you do file documenting that you had “reasonable cause” to file and pay late.
“Reasonable cause may include fire or another type of casualty, death, serious illness, or anything incapacitating the taxpayer or a member of the taxpayer’s immediate family,” Pickering said. “It could also include loss of records, for instance, if a taxpayer’s tax records were destroyed in a flood. The taxpayer must be prepared to document the circumstances, such as providing a hospital record.”
8 tactics to break credit card debt cycles
Strategies for managing credit card use
Upon paying off between $12,000 and $15,000 in credit card debt in 2019, Yamiesha Bell, a special education teacher in New York, didn’t break up with her credit cards.
With goals to buy a car and a house, Bell hoped to preserve her credit history by keeping her cards open and active.
“I needed to sustain my credit in order to get the interest rates I wanted in the future,” she says.
While credit cards aren’t ideal for everyone, they can help your credit journey if used responsibly. When reconciling with credit cards, you need a personalized stay-out-of-debt plan. Here are a few strategies to consider.
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1. Reflect on spending habits
Maybe you ditched debt, but history can repeat if you don’t unpack the motivations that contributed to it. A get-out-of-debt plan that works in the short term may not be sustainable over the long term if it doesn’t align with your priorities, according to Julia Kramer, a financial behavior and leadership consultant at Signature Financial Planning in Pennsylvania .
Kramer suggests tracking transactions dating back a week or more. Add a plus sign next to those purchases you’re willing to repeat and a minus sign next to those you’re not. For mandatory purchases like gas and groceries, add an equal sign.
Note the date, the item purchased, the amount and the need the purchase met. Those frequent lattes or meals out with friends may be more about the personal connection experienced, or something else, as opposed to the gratification provided by the item, according to Kramer.
This information is key to identifying areas in your budget that are negotiable. For example, you may be more willing to choose budget-friendly food in order to keep a facial that meets an internal need for self-care and connection, Kramer says.
If your spending strays upon experiencing feelings like anxiousness or boredom, make a plan for those occasions. It might mean budgeting extra money or employing tricks like using a credit card lock feature to prevent spending.
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2. Use cash for certain categories
If you want to reel in spending on categories like dining out or entertainment, for example, set aside physical cash to stay within budget. Money in hand can lead to more mindful spending, according to Kramer.
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3.Track spending
Create a tracking system that works for you. Setting up spending alerts on a credit card account can notify you if purchases exceed a certain amount. Tracking spending with a spreadsheet, bullet journal or budgeting app, for instance, can also help with mental accounting.
“I would not open up credit cards if you do not have a system in place where you track spending every month,” Kramer says. “It has to be something that appeals to you that you know you’re going to do.”
For Bell, a cash envelope tracking system helps her manage spending in different categories, including her credit card bill payment.
“When you look in a cash envelope and you see you only have $50, it’s very clear that once that money runs out there’s nothing else I can do,” she says.
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4. Use credit cards for planned purchases only
Ease your way back into credit cards with small planned purchases, like a subscription service payment.
After paying off debt, Bell only uses credit cards for in-budget purchases, and she pays them off in full each month to avoid interest charges. Initially, she left her credit card at home to avoid relying on it.
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5. Have an emergency fund to fall back on
An emergency fund of even $500 for a car or home repair may keep debt off of your credit cards. Start small and aim, eventually, to cast a wider safety net over time—ideally, three to six months of living expenses stored in a high-yield savings account.
If you previously got used to budgeting a certain amount each month to pay creditors, keep that momentum going, but direct funds toward savings instead.
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6. Don’t store credit card info on websites or apps
Convenient payment options can sometimes lead to mindless spending. By entering payment information into forms for every online purchase, you’ll have more time to think through a purchase.
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7. Get an accountability partner
A nonjudgmental partner or trusted loved one can offer input on a purchase or a stay-out-of-debt plan. An accountability partner can be a sounding board that lets you listen out loud to your own justifications for financial decisions.
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8. Update your strategy
As motivations and priorities change, your stay-out-of-debt plan should follow. Continue revisiting credit card statements to identify the needs that are being met by purchases and which are most important.
If in this process you continue to have frequent run-ins with debt, consider closing credit card accounts even if it can negatively impact credit scores.
“A big thing about this is knowing yourself and knowing what your challenge areas are and finding ways that work around them,” Bell says. “Five years from now it might look different, but for right now that’s what works.”
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