Back Taxes Penalties Explained: Why You Should File on Time and Resolve Back Tax Issues Promptly
Whether you owe the federal government a little or a lot in taxes this year, you may not see the point in striving to file your return on time.
However, the penalties for late payment can hit you hard-and add up quickly.
Does it really matter if you file your taxes on time? In a word: yes.
The Internal Revenue Service will begin to pile on the penalties not long after April 15-and the longer you put off resolving the situation, the more the penalties will snowball.
Soon, you might find yourself with a back tax debt that far exceeds the original amount due, which can make it even harder to pay it off in a timely fashion.
If you're already struggling with back taxes, break the cycle of debt and delay this tax season by filing your tax return on time and by seeking help from a tax resolution professional.
Penalty Calculations The IRS imposes three different tax penalties for late returns and payments: failure to file, failure to pay, and interest.
The failure-to-file penalty deals with the lateness of the paperwork.
You'll accrue 5% of the amount due for each month the return is late.
If your tax return is more than five months late, the penalty will max out at 25% of the total.
The failure-to-pay penalty is calculated based on the amount unpaid.
You'll accrue 0.
5% of your total due per month the payment is late.
This penalty can also get up to as much as 25% of the total.
The IRS will also impose interest on the amount due for every day the payment is late.
Note that because the failure-to-file penalty is larger than the failure-to-pay penalty, it's a good idea to file the return on time even if you can't pay the balance.
You can explore options for paying back taxes in the interim.
Filing an Extension If you know in advance that you won't be able to file your tax return on time, speak to a tax attorney or accountant in your area about completing the paperwork to apply for an extension.
This extension gives you an extra six months to file the return-but does not affect the payment due date.
Thus, an extension can help you avoid the failure-to-file penalty, but not the failure-to-pay penalty or any interest accrued.
If your tax return paperwork is complete but you just aren't ready to pay in full, file on time rather than applying for an extension.
Penalty Abatement The IRS understands that there are some circumstances that would make it difficult or impossible to pay taxes by the deadline.
If you've experienced a death in the family, a disaster at home, an accident that destroyed your tax records, or a lengthy period out of work, you may be able to get what's known as penalty abatement.
Hire a CPA or tax attorney to be your advocate and prove that you had legitimate reasons for not paying or filing.
Note that penalty abatement means you will have the late penalties removed, but will still owe the actual tax amount.
A tax resolution expert can help you navigate the complex laws and regulations surrounding back tax payment and will be able to advise you as to your options moving forward.
It's never too late to get on top of your tax debt situation.
In fact, the sooner you take steps to resolve back taxes, the sooner you'll stop the penalty cycle and the less you'll pay overall.
Finally, if you're not yet in debt but don't see any reason to rush to file on time, consider the penalties you'll accrue, and think again.
However, the penalties for late payment can hit you hard-and add up quickly.
Does it really matter if you file your taxes on time? In a word: yes.
The Internal Revenue Service will begin to pile on the penalties not long after April 15-and the longer you put off resolving the situation, the more the penalties will snowball.
Soon, you might find yourself with a back tax debt that far exceeds the original amount due, which can make it even harder to pay it off in a timely fashion.
If you're already struggling with back taxes, break the cycle of debt and delay this tax season by filing your tax return on time and by seeking help from a tax resolution professional.
Penalty Calculations The IRS imposes three different tax penalties for late returns and payments: failure to file, failure to pay, and interest.
The failure-to-file penalty deals with the lateness of the paperwork.
You'll accrue 5% of the amount due for each month the return is late.
If your tax return is more than five months late, the penalty will max out at 25% of the total.
The failure-to-pay penalty is calculated based on the amount unpaid.
You'll accrue 0.
5% of your total due per month the payment is late.
This penalty can also get up to as much as 25% of the total.
The IRS will also impose interest on the amount due for every day the payment is late.
Note that because the failure-to-file penalty is larger than the failure-to-pay penalty, it's a good idea to file the return on time even if you can't pay the balance.
You can explore options for paying back taxes in the interim.
Filing an Extension If you know in advance that you won't be able to file your tax return on time, speak to a tax attorney or accountant in your area about completing the paperwork to apply for an extension.
This extension gives you an extra six months to file the return-but does not affect the payment due date.
Thus, an extension can help you avoid the failure-to-file penalty, but not the failure-to-pay penalty or any interest accrued.
If your tax return paperwork is complete but you just aren't ready to pay in full, file on time rather than applying for an extension.
Penalty Abatement The IRS understands that there are some circumstances that would make it difficult or impossible to pay taxes by the deadline.
If you've experienced a death in the family, a disaster at home, an accident that destroyed your tax records, or a lengthy period out of work, you may be able to get what's known as penalty abatement.
Hire a CPA or tax attorney to be your advocate and prove that you had legitimate reasons for not paying or filing.
Note that penalty abatement means you will have the late penalties removed, but will still owe the actual tax amount.
A tax resolution expert can help you navigate the complex laws and regulations surrounding back tax payment and will be able to advise you as to your options moving forward.
It's never too late to get on top of your tax debt situation.
In fact, the sooner you take steps to resolve back taxes, the sooner you'll stop the penalty cycle and the less you'll pay overall.
Finally, if you're not yet in debt but don't see any reason to rush to file on time, consider the penalties you'll accrue, and think again.