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As our clients will tell you, it’s good to have a CPA and a tax preparation expert on your team to ensure you submit a correct tax return and pay only the taxes you owe on time. However, after the April 15th tax deadline day, we often receive a number of calls from people who were not able for a variety of reasons to prepare and submit their tax return by the deadline. The number one question usually has to do with the penalties for filing a tax return after the deadline and for not paying taxes owed on time.
The IRS has compiled the following information that may help you if you are also wondering how the penalties and interest may pile up.
Meanwhile, rest assured that our experienced tax preparation experts will be able to help you should you need to “catch up” on a late tax return filing. Remember: It’s better to file your tax return(s) as soon as you can, even if you can’t pay right away. (Having trouble paying your tax obligation? Check out our past blogs on payment options: Ways to Pay Taxes, The EFTPS Tax Payment Option, and If You Missed the Tax Deadline. )
Here is the synopsis of penalties and interest that may accrue on late tax return filing and late tax payments:
When there is no penalty: If you are due a refund there is no penalty if you file a late tax return.
Interest and penalties when you owe taxes: But if you owe tax, and you failed to file and pay on time, you will usually owe interest and penalties on the tax you pay late. You should file your tax return and pay the tax as soon as possible to stop them.
Eight facts that you should know about tax-related penalties:
1. Two penalties may apply. If you file your federal tax return late and owe tax with the return, two penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.
2. Penalty for late filing. The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent of your unpaid taxes.
3. Minimum late filing penalty. If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100 percent of the unpaid tax.
4. Penalty for late payment. The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes. 5. Combined penalty per month. If the failure-to-file penalty and the failure-to-pay penalty both apply in any month, the maximum amount charged for those two penalties that month is 5 percent.
6. File even if you can’t pay. In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if you can’t pay in full, you should file your tax return and pay as much as you can. Use IRS Direct Pay to pay your tax directly from your checking or savings account. You should try other options to pay, such as getting a loan or paying by debit or credit card. The IRS will work with you to help you resolve your tax debt. Most people can set up an installment agreement with the IRS using the Online Payment Agreement tool on IRS.gov.
7. Late payment penalty may not apply. If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.
8. No penalty if reasonable cause. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show reasonable cause for not filing or paying on time. There is also penalty relief available for repayment of excess advance payments of the premium tax credit for 2014.
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So, bottom line. Do the best you can to gather your tax documents and submit accurate federal and state tax returns, even if late. Contact us at McRuer CPAs if you need more information or would like a review of how the above tax interest and penalties may affect you.
