If you owe taxes to the IRS, you should know about the IRS penalties for late filing and paying federal taxes because these penalties could increase your tax bill significantly. To avoid these fines, ensure you file your taxes by the April deadline or the October deadline if you file for an extension. To file for an extension, you must fill out Form 4868. With that in mind, here is some more information about these fines.
If you miss the filing deadline, the IRS will impose a 5% fine on your unpaid taxes for each month after the filing deadline up to a maximum of 25%. However, if you're late by two months or more (at least 60 days), the fine will be at least $135 or 100% of your unpaid taxes, whichever amount is less. Thankfully, the IRS can waive this fine if you can show reasonable cause for late filing.
Unlike the late filing penalty, the late payment penalty applies whether you filed an extension or not. The fine is typically 0.5% for each month or a part of a month that your taxes are unpaid but it can grow up to 25% of your unpaid taxes. However, if you're facing both late filing and late payment fines in a month, the IRS will waive the latter, meaning you would have to pay the 5% late filing fine for the month. Because the late payment penalty is ten times lower than the late filing penalty, you should file your taxes on time, even if you have no money to clear your tax debt.
Both late filing and late payment penalties attract compound interest. The fines and interest start accruing on unpaid taxes one day after the filing deadline and stop accumulating as soon as you clear your tax debt. Currently, the interest rate stands at 4.18% or 3% above the federal short-term rate of 1.18%. However, the rate is subject to change.
Like most taxpayers, you are eligible to use the online payment agreement tool on the IRS website to set up an installment agreement that would allow you to pay your taxes in installments over time.
If the IRS owes you a tax refund, then it cannot hit you with these penalties. However, to get your refund, you must file your 2017 taxes by April 18, 2021 (or October 16 of 2021, if you filed an extension). If you fail to do that, you will not get your refund because the IRS will turn over any unclaimed tax refunds the US Treasury.
If you are unable to meet the tax filing deadline due to one reason or another, you should file for an extension. However, an extension would not exempt you from paying your taxes. In fact, even if you file an extension, you will still need to pay 90% of your unpaid taxes by the filing deadline.
If you owe taxes to the IRS, ensure you file and pay your taxes on time to avoid penalties for late filing and paying federal taxes. Visit http://www.lonestartaxgroup.com today to learn more about filing taxes.
Lone Star Tax Group