If there is one thing that keeps people awake at night, it’s tax time. Every year when April rolls around, their thoughts turn to how they can make their tax payments on time, hoping to avoid penalties for late filing and late payments. Unfortunately, when late filings and late payments become reality, the IRS begins adding interest and other financial penalties that may result in hundreds or thousands of extra dollars being paid out. To keep this from happening, here are some ways you can avoid the penalties associated with late filing and late payment of taxes.
What Steps Can I Take?
Needless to say, if you can file and pay your taxes on time, by all means do so. However, if you know you won’t be able to meet the deadline, there are some steps you can take. For example, if you cannot file on time, you can avoid the late filing penalty by filing for an extension. In addition to this, if you expect to owe money to the IRS, pay as much as you can initially, so that you’ll reduce the late payment penalty and interest you’ll pay later on.
The Facts About Late Filing Penalties
When you don’t file for an extension or file your taxes at all, be prepared to face some stiff late filing penalties from the IRS. Unfortunately, the late filing penalties are much worse than late payment penalties, so do everything possible to file on time or request an extension if needed. As for the penalties, the normal amount is five percent of unpaid taxes for each month your return is late. While this certainly sounds bad enough, the good news is that this amount will not go above 25 percent of your overall unpaid taxes. It’s also important to remember that if you file 60 days or more past the due date, your minimum penalty will be 100 percent of your unpaid taxes or $135, whichever amount is smaller.
What About Late Payment Penalties?
If you owe the IRS money and don’t pay the full amount by the tax filing deadline, late payment penalties will result. This starts accruing the day after the filing deadline, and is .5 percent of unpaid taxes for each month the taxes stay unpaid. But as with the late filing penalty, this amount does not go past 25 percent of the unpaid taxes. However, if you request an extension and pay at least 90 percent of your taxes by the extension deadline, you may not be subject to any late payment penalties. And in certain situations where you simply cannot pay your tax debt anytime soon, you may be able to work out a monthly payment plan with the IRS to reduce the penalties.
If you find yourself in dire straits financially, contact the IRS and explain your situation. If you have a reasonable cause for the delay, the IRS will often be willing to work out a solution to help you meet your tax obligations.