Once you miss a tax filing deadline, it’s all too easy to make the additional mistake of continuing to procrastinate. Well, here’s a good reason not to do that: a higher rate for IRS penalties kicks in for those that haven’t filed by the end of the day on Thursday, June 14.
After that date, things get complicated: The minimum penalty becomes either $210 or 100 percent of the unpaid tax amount, whichever amount is less.
Up until this point the penalty amounts to 5 percent for each month — or even partial month — a tax return is late and the taxpayer hasn’t requested an extension.
Once a return is filed, the IRS calculates the penalty and interest due and sends you a bill — payment is usually due within 21 days.
If you pay what you owe when you file, you avoid additional late payment penalty and interest charges. The penalty portion of that is 0.5 percent of the unpaid tax — imposed for every month (or part of a month) that the payment is late. The interest amounts to 5 percent annually, and it compounds daily.
Should your reason for not filing have anything to do with an inability to pay, you’re better off requesting an installment plan or suggesting a compromise amount.
Can You Get IRS Penalties Waived?
It’s also possible to apply for an abatement of any penalty assessment, but to qualify for that you need to have paid on time for the last three years in a row. It’s also possible to have the penalties reduced if you can prove your lateness wasn’t due to willful neglect.
Penalty Won’t Apply
The penalty won’t apply to what the IRS estimates to be 14 million taxpayers who requested extensions — they have until October 15 to either file or request another extension, which would push out the final deadline to December 15.
However, that doesn’t mean that the possibility of penalties doesn’t exist for people who file for extensions and then miss the extended deadlines. The increased penalties kick in 60 days after the agreed-upon deadline.
To clarify: The penalty also doesn’t apply to people who need to claim refunds, but the IRS feels compelled to remind taxpayers that they have to claim that refund within three years of the original filing date or forfeit that refund (Wouldn’t the prospect of a refund be enough to motivate people to file on time?).
For what it’s worth, 135 million taxpayers filled on time, by April 18 this year. Over 90 percent of them filed electronically.
Finally, if you do end up going having to deal with late filing penalties, the lesson to learn from this might be to ratchet up your tax withholding so that you don’t have to end up owing money later on.
Readers, have you ever missed the tax filing deadline without requesting an extension — and if so, what happened in the aftermath?
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