It’s my annual “Taxes from A to Z” series! If you’re wondering whether you can claim wardrobe expenses or whether to deduct a capital loss, you won’t want to miss it.
L is for Late Filing & Late Payment Penalties.
This year, Tax Day is April 18. That’s the due date for filing your federal income tax return and paying any taxes due. If you fail to file and/or pay by that date, you may be assessed a penalty by the Internal Revenue Service (IRS).
A failure to file penalty may apply if you do not file by the due date. You should file your tax return on time – even if you can’t afford to pay the tax in full – in order to avoid the penalty. The failure to file penalty is generally 5% of the unpaid taxes for each month that your tax return is late (but not to exceed 25% of your unpaid taxes). The penalty begins to accrue the day after the due date. If your return is more than 60 days late, you are subject to a minimum penalty of the lesser of $205 or 100% of the tax owed.
If you can’t file on time, the best way to avoid a failure to file penalty is to request an extension (here’s how). An extension extends the time to file, not the time to pay.
A failure to pay penalty may apply if you do not pay all of the taxes you owe by the due date. The failure to pay penalty is generally .5% of your unpaid taxes for each month or part of a month that your payment is late. Like the failure to file penalty, the penalty begins to accrue the day after the due date.
If you have extenuating circumstances, you may be able to get a penalty waiver for reasonable cause.
Interest will accrue in addition to the penalty. The interest rate is determined quarterly and is the federal short-term rate plus 3%. Since the imposition of interest is statutory, it’s unusual for the IRS will waive interest on late payments, even for reasonable cause.
For more Taxes A to Z, check out: