You might be wondering whether or not you’re about to face federal penalties for failing to file your tax returns by the due date. If that’s the case, A) you should contact our CPAs right away, but B) don’t panic. Here’s some of the facts you should to know.
First, penalties apply if you owe any federal tax and fail to file your return (or extension) on time. Additionally, if you filed your extension or return on time but fail to pay your owed taxes, you will incur penalties and owe the IRS some interest. However, if you are expecting a refund from the IRS and fail to file your return on time, the penalties do not apply.
The penalty for failure-to-file is usually higher than the penalty for failure to pay. Therefore, filing your returns by
April 15th the deadline (howdy, 2020) of every year, even if you are unable to pay the taxes at that time, would go a long way in saving you some money. The IRS will assist you in getting alternative payment methods such as getting a loan or making agreed installment payments.
Filing late taxes will incur a 5% fine of the unpaid taxes for every month or part of the month that you are late. This starts the day after the due date, and can accrue up to 25%. Failure to pay taxes by the tax deadline attracts a penalty of 0.5% percent of your unpaid taxes for every month or part of a month after the due date. However, the IRS allows you to request a timely extension to file your returns and pay at least 90% of the owed taxes plus interest and avoid the failure-to-pay penalty. Nevertheless, you are compelled to pay the balance by the provided extension.
If both the failure-to-pay and failure-to-file penalties of 0.5% and 5% respectively apply in any month or part of a month, you will pay a maximum of 5% for both. Finally, if you file your returns later than 60 days after the tax deadline (or the extension), you might pay a penalty of up to 100% of the unpaid tax.
Remember, if you have proof and can provide reasonable cause to the IRS for late filing or late payment, you will be exempted from the applicable penalties.
The IRS has also provided tax reliefs for several taxpayers who requested extensions, including victims of severe storms in different parts of the country.