April 15th has come and gone, and if you haven’t filed your taxes, there will likely be penalties assessed. These can become significant, especially if you’re also behind on tax payments. There are a number of ways to deal with this situation, however, and while it’s best to avoid filing late in the first place, the IRS is typically willing to work with those who face difficulty making the deadline.
Late Filing Vs. Late Payments
Before going into what happens if you’re late filing, it’s important to know that filing late is not the same as paying late. You can file on time and be late paying the taxes you owe, or vice versa.
If you are not able to make your tax payments on time, you should still try to file by the deadline since penalties for a late return are much heftier than those assessed on late payments.
If you are late filing your tax return, then the penalty is 5% of your unpaid taxes for each month (or part of a month) that you are late in doing so. This penalty will not exceed 25% of your total taxes, however. If you file more than 60 days late, the minimum penalty would be either 100% of the unpaid amount or $135, whichever is smaller.
If you are simply late on payments, the amount is half of one percent (0.5%) of the amount you owe for each month late.
The maximum penalty for any given month is 5%, so if you would be assessed both the penalty for filing late and the one for late payments, the amount won’t be increased beyond 5%.
Option 1: Request an Extension
If you know that you are going to be late filing your return, then it’s best to request an extension. This will give you an extra six months to get your materials together in order to file an accurate return and avoid other penalties.
This is only an option prior to the filing deadline, however. If April 15th has already come and gone and you haven’t filed your return, then you cannot request an extension.
Option 2: First-Time Penalty Abatement
If you never had to file a tax return in previous years or if it has been more than three years since the last time you assessed a penalty for your taxes, you can request a penalty abatement from the IRS. This is available after you have filed your return and either paid outstanding tax amounts or made arrangements to pay them in the future.
Option 3: Show Reasonable Cause
If extenuating circumstances prevented you from filing your return, you can request penalty relief from the IRS. Reasonable causes include the following:
- Natural disasters, fire, or other catastrophes
- Death, incapacitation, or serious illness of the taxpayer or a member of his or her family
- Inability to obtain needed records
In general, if you have done everything in your power to meet your tax obligations but were unable to do so, you could qualify for penalty relief due to reasonable cause.
Resolving Complex Scenarios
Sometimes, a situation involving a late tax return can get complex, and legal help will be necessary. Hart David Carson LLP can guide you through the process of diminishing penalties in these scenarios.