You’re Late! What to Do if You Haven’t Filed Your Taxes

Tax day has come and gone, and there are still some people who haven’t filed their returns or extensions. There is one important thing to know if you haven’t filed your taxes yet – file them as soon as possible, EVEN IF YOU CAN’T PAY ALL THE TAX YOU OWE.

The IRS can apply two different penalties for late filers/payers. The first is a failure-to-file penalty for not filing on time. The second is a failure-to-pay penalty for paying late. While it might seem counter-intuitive, it will actually cost you much more in penalties for not filing on time than it will for not paying on time. The penalties are:

Can't pay taxes? File anyway. Carpenter Evert and Associates

Penalty for late payment.  The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes (maxes out at 25% of your unpaid taxes).

Penalty for late filing.  The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month that a tax return is late (not to exceed 25% of your unpaid taxes).

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.

Let’s look at an example. Joe and Joanna Johnson owe an additional $5,000 in tax because of a change in income that they hadn’t accounted for. Joe freaks out and wants to ignore their taxes until he gets his work bonus in five months and they have the money to pay the taxes. Joanna is more practical, and knows they should file now, even if they can only scrape up $500 of what is due.

If they go with Joanna’s plan, this is what it will look like. (If you file after April 18, figure in a daily late filing penalty of about $8.00 a day.) The penalty for late payment is .5% of unpaid taxes per month for 5 months, totaling $ 113 in penalties.

Joe’s scenario would look like this if they wait until October 16 to file and pay the taxes they owe. The penalty for late payment and late filing is 5% of unpaid taxes per month over 5 months, totaling $ 1,250 total penalties (and they haven’t even paid the taxes yet!)

The Johnsons will save well over $1,000 in penalties by filing now, even though they can’t pay all their tax until September. If you are in a similar situation and need help completing your return, contact one of the tax experts at Carpenter Evert. We can help you get your return filed and save you money. But remember that every day counts, so whether you call us or file on your own, do it now so you can stop the penalties from adding up.

For more information from the IRS, go to the IRS Collection Procedural Q&A.

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