Filing Your Taxes Late: What Happens When You Do So?
Filing your taxes late can have significant consequences, including fines and penalties. If you don’t file your taxes by the deadline, which is typically April 15th of each year, the IRS will begin assessing penalties on the unpaid amount.
The first penalty you may face is the failure-to-file penalty, which is 5% of the unpaid taxes for each month or partial month that your return is late, up to a maximum of 25%. This penalty is assessed on the taxes that you owe and haven’t paid by the deadline. So, if you owe $1,000 in taxes and your return is three months late, the failure-to-file penalty would be $150.
In addition to the failure-to-file penalty, the IRS may also assess a failure-to-pay penalty. This penalty is 0.5% of the unpaid taxes for each month or partial month that the taxes are unpaid, up to a maximum of 25%. This penalty is assessed on the taxes that you owe and haven’t paid by the deadline. So, if you owe $1,000 in taxes and don’t pay them until three months after the deadline, the failure-to-pay penalty would be $75.
It’s important to note that the failure-to-file penalty is generally more severe than the failure-to-pay penalty. In fact, if you file your taxes late but don’t owe any taxes, you will only have to pay the failure-to-file penalty. However, if you don’t file your taxes at all and owe taxes, you will have to pay both penalties.
In addition to the penalties, the IRS may also charge interest on the unpaid taxes. The interest rate is determined by the federal short-term rate, which is set by the IRS, plus 3%. The interest is compounded daily and is charged until the taxes are paid in full.
If you can’t pay your taxes in full, you may be able to set up a payment plan with the IRS. However, this won’t necessarily eliminate the penalties and interest that you owe. In some cases, the IRS may be able to reduce or waive the penalties if you can show that you had a valid reason for not being able to file or pay your taxes on time.
Filing your taxes late can be a costly mistake, so it’s important to do everything you can to avoid it. If you need more time to file your taxes, you can request an extension by filing Form 4868 with the IRS. This will give you an additional six months to file your return, but it won’t extend the time you have to pay any taxes that you owe.
In conclusion, filing your taxes late can result in significant penalties and interest charges. It’s important to file your taxes on time, or request an extension if you need more time. Ignoring and avoiding your tax liabilities can have more serious consequences than penalties and interest. There is the potential for jail time if the IRS thinks you’re actively evading taxes. Err on the side of caution and file your taxes on time, even if you know you owe and can’t pay it all at once.