Are you procrastinating your payment to Uncle Sam this tax season? If you still haven’t gathered the required documents and are filing and paying your taxes later than the deadline, you will face related consequences. No matter why you delayed your income tax payment, you should have submitted IRS Form 4868 to request an extension by the due date. A tax extension gives you more filing time, usually until October 15. In any situation, if that date falls on a holiday or a weekend, you have until the next business day. The extended tax deadline for the 2024 tax season is October 15, 2024.
If you want to know what happens when you don’t file your taxes on time, this article will help you understand the process. Moreover, you will learn about penalty reduction and possible appeals if you file your taxes late. The best way to save yourself from penalty is to pay your taxes on time!
What Happens If You File Taxes Late
Before we proceed, let’s discuss what happens if you fail to file your taxes. The following pointers will help you understand the consequences of filing your taxes late:
- You will face a late filing penalty if you do not submit Form 1040 and other related tax documents.
- Further, if you fail to pay taxes by mid-April (expected timeline), you will face a late-payment penalty.
- If residents get both tax penalties in the same month, the late-filing penalty gets reduced by the late-payment penalty amount.
You shall pay your taxes immediately, even after missing your deadline. Paying taxes on time reduces fees and interest. Under some conditions, you can get relief from the penalty.
Understanding IRS Late Filing Penalties
If you have missed your April tax filing deadline or failed to file by the tax extension deadline, the IRS may charge a failure-to-file penalty. The penalty imposed by the IRS is based on the amount of your unpaid taxes.
Typically, the agency charges 5% of your taxes due for every full or partial month of delay. Nonetheless, the IRS charges a maximum of 25% of the taxes owed.
For instance, if you owe $10,000 in taxes to the IRS, the agency will charge you $500 monthly if you still need to file your taxes. But the IRS cannot charge you more than $2,500.
Furthermore, it is important to understand that if you are due to receive a tax refund and have not filed your tax return, the IRS won’t charge you a penalty for late filing.
How To Calculate Your IRS Late Filing Penalty
Two factors affect the IRS’s late filing penalty. Let’s talk about these factors and their importance for every resident in the USA:
Unpaid Tax Amount
The Unpaid Tax Amount describes the total tax one owes after reducing all withholdings, estimated payments, and refundable credits from total tax liability.
Months Late
The month-late calculation starts from the original due date (mid-April) and ends on the date you file your return. Even if a partial month is covered, the penalty is charged. Now, let us talk about how a penalty gets charged.
- The Penalty amount is 5% per month (according to the late return time).
- The maximum penalty is 25% of the total unpaid tax.
Understand the forms clearly and fill them out in a timely manner to avoid confusion and further penalties.
Strategies To Minimize The Impact Of Irs Late Filing Penalties
You can find multiple ways to minimize the impact of IRS penalties. Taxes can become stressful, and these strategies will get the best out of the situation.
Filing and Extension before the Deadline
If you know you won’t be able to file your tax return on time, you should file an extension. This filing might help you get an extension of six additional months. This deadline extension is for filing taxes and not for paying. This extension will give you time to gather documents, consult with professionals, or do further things. You can fill out Form 4868 electronically through the IRS website or by mail.
Filing Return even if You Can’t Pay
You may not be able to pay your taxes in full by the yearly deadline. Even if the above situation occurs, you should file your returns on time (or with an extension). You will get the benefit of not paying the late penalty. You can file your taxes and spend the rest of your time paying them.
Penalty Abatement
You can get a reduction in the late filing penalty after demonstrating reasonable cause for late filing. In tax documents, you can state issues like serious illness, natural disasters, or specific unexpected delays. The tax filers can fill out Form 843 and request penalty abatement with your tax return.
You should understand that penalty abatement is not guaranteed, and this clause is available for potential benefit.
Filing Taxes Electronically
If you are filing your taxes electronically, you are saving time. Moreover, you are not risking accuracy, which may happen via mail. Electronic filing can help avoid delays, which can lead to penalties. Automatic error checking, direct deposit, and other related benefits can be availed with electronic filing. Additionally, this filing time leads to a better taxpayer turnaround time.
Getting Professional Help
If you are facing issues while filing taxes and want to save money by filing late, consider getting professional help from an Enrolled Agent or certified public accountant (CPA). Professional help will assist you in saving penalties in the long run and provide strategies for minimizing tax liability.
The Difference Between Late Filing And Late Payment Penalties
Let’s understand the meaning and difference between a Late Filing Penalty and a Late Payment Penalty.
Late Filing Penalty
This type can be defined as the penalty for submitting a late tax return (after the deadline, i.e., 15th April 2024)
Late Payment Penalty
This penalty is for owing taxes and not paying them by the deadline, even after filing your return. The Late Filing Penalty is steeper and can be defined as 5% per month.
How To Appeal An IRS Late Filing Penalty
Here are some steps that one can follow to Appeal an IRS late Filing Penalty.
Step 1: Documents
Ensure you have a copy of the IRS notice related to the late filing penalty. Further, you should have documents that explain the “reasonable cause” of filing late returns. Medical proofs, natural disasters, and other files can be included.
Step 2: Submitting your Appeal
If this is your first filing time, you may qualify for “First Time Abatement”. Further, please fill out Form 843 carefully and include accurate details about your tax year. You can fill out this form electronically or via mail.
Step 3: Follow-Up and Responses
The IRS takes 30-45 days to process your appeal. You may receive a phone call or letter with the final decision from the IRS. The organization can deny your appeal or ask for further information.
Understanding The Maximum Limits On Irs Late Filing Penalties
Here is a list of maximum limits on Irs Late Filing Penalties.
- The maximum late filing penalty is 25% of the total tax amount. The penalty will not exceed this limit.
- The late fee reaches the maximum limit (25%) after five months if the taxes are not filed.
- There is no maximum amount for the Late Payment Penalty.
- If you can state a reasonable cause to the IRS, you may get a reduction in penalty.
Read related blog: What Happens If You Lie On Your Taxes?
Conclusion
Filing your returns can be stressful. This process becomes more stressful when you file your taxes late or pay the required amount. Understanding the difference between late penalty fee and late filing fee is significant as well. The best way to file your taxes is via electronic mode, with the help of a professional. Try Beem and calculate your taxes today! Further, get help filing taxes at a flat price with no hidden fees.