Many taxpayers every year run out of time before the deadline in April to file their taxes on time. This extension of time to file a complete and accurate return does not give the taxpayer an extension of time to pay. The following is a list of items that taxpayers should know when extending their tax return with the anticipation for filing by the extension deadline of October 15th:
Late filing penalties:
If you owe tax, and you failed to file and pay on time, you will most likely owe interest and penalties on the tax you pay late.
The penalty for filing a late return is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late and starts accruing the day after the tax filing due date. Late filing penalties will not exceed 25 percent of your unpaid taxes.
You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. Interest and penalties will be reduced for timely filing. This gives the taxpayer time to look for other avenues to pay the tax owed. If no other outlet is available for paying, the IRS will enter into an installment agreement to pay the taxes.
If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.
When you file and pay late, there could have two penalties applied. One will be for the late filing and the other will be for late payment. Both penalties will accrue interest, as well.
Minimum penalties apply if the return is filed more than 60 days after the due date (with extensions). The minimum penalty will be the smaller of $135 or 100% of the unpaid tax.
Filing and paying:
Even if you can’t pay the tax, we encourage all clients to file the return. Paying the IRS sooner rather than later will avoid later filing penalties. The more that you wait the more that you will owe.
Don’t hesitate to reach out to one of the professionals at TH&W if you have any questions concerning your unique tax situation.