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With debate underway about the reasons why so many taxpayers are filing later than usual this year, the bottom line remains the same: file on time and pay on time, or it will cost you.
The numbers show more taxpayers are requesting extensions to file their completed income tax returns and millions more are for the first time seeking alternative ways to pay what they owe by the deadline. The stagnant economy, new tax laws, the expiration of many tax relief programs, and increases in living expenses are all being blamed for limited resources and unexpected tax obligations.
Taxpayer advocates have helped pressure the IRS to expand the filing and payment options available for taxpayers as the tax code and guidance continues to grow more complicated each year. The IRS has already offered some relief from penalties this tax season if a taxpayer can show that their delays were caused by this season’s late issuance of more than 31 tax forms.
An IRS report says, “The number of electronic filing and payment options increases every year, which helps reduce your burden and also improves the timeliness and accuracy of tax returns.”
However, when it comes to filing your income tax return and paying the taxes you owe, don’t expect any favors.
You face penalties for failing to file and filing late; and, if you also owe taxes, you face penalties for failing to pay and paying late.
Here are the general rules, but make certain you consult with your professional tax preparer or find more information from the IRS about how the rules and penalties may specifically apply to you.
If you file late: The penalty for filing late is typically 5 percent of the unpaid taxes owed for each month that a return is late. It cannot exceed 25 percent of what you owe. If you file your return more than 60 days after the due date or extended due date, the penalty is $135 or, if you owe less than $135, you would be penalized 100 percent of your unpaid tax.
If you don’t pay the taxes owed on time: Late tax payments made after the due date generally result in a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month the taxes are not paid. It cannot exceed 25 percent of what you owe.
If, by the deadline, you file for an extension and pay at least 90 percent of your tax liability: You will not face a failure-to-pay penalty if the remaining balance is paid by the extended due date.
You may not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
For millions of taxpayers who are facing serious financial struggles, the IRS offers choices based on individual circumstances such as installment agreements, temporary delays due to a hardship and an Offer in Compromise.
Be mindful that there are ways to get back on track if you have fallen behind on filing and/or paying your taxes. The best practice is, if you can’t meet the deadline, communicate your issues and begin the process to resolve the matter.
Each time you delay or fail to pay, it will cost you even more. If you have any questions, please contact us at McRuer CPAs.
