As most people know the filing deadline for income tax returns is April 15th however not everyone always files by the deadline. This article will focus on what happens when a taxpayer does not file on time or if the taxpayer filed but did not pay their liability in full. I will focus on federal returns in the article.
Tax return was not filed on time, what’s next?
There are some returns that are not filed on time but have a valid extension. These taxpayers have no problem at all. The IRS recognizes that it is not always possible to gather all of your information and file by April 15th. Typically taxpayers that are involved in partnerships, LLCs, S corporations, Estates or Trusts may need additional time to obtain information pertinent to file their income tax returns. Filing an extension, however, does not extend your time to pay therefore if you are unable to file by April 15th you are still required to estimate the amount of tax you owe and pay it by April 15th. The main reasoning behind making people estimate their balance due is that if this was not done then any taxpayer with a balance due would automatically go on extension and wait until October 15th (the due date of extended returns) to pay their balance due.
Some taxpayers that did not file on time also did not file an extension form. This is a little more complicated. There are late filing penalties of 5% of the amount due each month or part of a month that your return is late. The maximum penalty is 25%.
Individuals without a valid extension should file as soon as possible to at least stop the late filing penalties and pay as much as possible to reduce or eliminate the late payment penalties (which are explained below).
What happens if I did not pay may tax in full by April 15th?
The IRS imposes a late payment penalty of ½ of 1% of any tax not paid by April 15th. It is charged monthly and the maximum penalty is 25%.
What if I can’t pay my entire balance due?
For those taxpayers that cannot afford to pay their balance in full I would advise paying in as much as possible. The penalties and interest are charged on outstanding balances and therefore the more that you can reduce the outstanding balance, the more you can reduce your penalties and interest.
The IRS also has an option available to most taxpayers to pay their balance due through an installment agreement. Most taxpayers can sign up for the installment agreement online at www.irs.gov.
Conclusion
This article focuses on taxpayers that either file or pay their taxes late. Although the article explains the general rules you would be well advised to speak to a tax professional as there are sometimes circumstances which may make a taxpayer’s situation unique.