Advice if you missed filing by the July 15 deadline.
Don’t stress if you owe taxes, but don’t procrastinate.
Ordinarily, the failure-to-file penalty is 5% of the tax owed for each month or part of a month that a tax return is late. For example, if you owe $1,000 the late filing penalty is only $50 during the first month late, which isn’t a huge amount.
It is important to file within 30 days of the deadline to avoid paying a larger late filing penalty.
However, if a return is filed more than 60 days after the due date, the minimum late filing penalty is either $435 or 100% of the unpaid tax, whichever is less. This can be a steep penalty for people who owe a small amount of taxes. For example, if you owed $400, the minimum penalty would be $400, which is 100% of the unpaid tax.
Some people make the mistake of not filing their taxes because they don’t have the money to pay their taxes. Don’t make this mistake.
The late filing penalty is much larger than the late paying penalty. The late filing penalty is 5% a month compared to the late paying penalty of 0.5%. So, if you owed $1,000 and filed less than a month late, the late filing penalty would be $50 but the late paying penalty would only be $5.
If you haven’t had any late filing penalties in the last three years you may qualify for the first-time penalty abatement. If you believe you qualify, you can call the IRS and request the abatement. If the penalties are substantial you may want to call a licensed tax pro. They can normally call the IRS and get though in a matter of minutes. Taxpayers may be on hold for hours before they are able to speak with an IRS employee. Additionally, a tax pro can pull your transcripts and verify whether you qualify for a first-time penalty abatement. A tax pro may also be able to determine if you qualify for a reasonable cause abatement of penalties.
I have encountered many people who stress about filing their taxes before the IRS deadline even though they are getting a refund or don’t owe taxes. If you don’t owe taxes you are not penalized for filing after the deadline.
However, if you don’t file within three years of the deadline you lose the right to the refund for those years.
I had a client who went six years without filing because he thought his refunds would be small and he didn’t need the money. His refunds turned out to be over $5,000 each year. Unfortunately, because three of the returns were more than three years late, he lost out on over $15,000 in refunds for those three years.
(David Zubler is a tax accountant and Enrolled Agent in East Tennessee, providing tax strategies and representing clients before the IRS and has more than 25 years of tax experience. He is the author of four tax books and is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, YourTaxCare.com. David can be reached at 865-363-3019 or contacted by email at firstname.lastname@example.org.)