What are the risks of filing a late tax return with the IRS?
This article looks at the penalties for filing a tax return late and how people can get an extension.
Tax season is here, which means that many people are scrambling to get their taxes filed by the deadline (which happens to be April 18 this year). For those who have not filed their taxes – and, according to the Motley Fool, there are about seven million people who fail to file every year – they may be wondering what the consequences of filing late or not at all are. Make no mistake, not filing a tax return can have serious consequences as the penalties for failing to file, especially for those who owe money to the IRS, are quite high. Below is a look at what those consequences are and what late filers can do to avoid getting penalized.
Late-filing penalties
The penalties for filing a tax return late depend on whether the filer owes money to the IRS or not. Luckily, those who do not have a debt with the IRS are not penalized for filing late. Those who do owe taxes, however, face a big penalty of five percent of their unpaid tax bill for every month that the return is late. The maximum penalty is 25 percent of what is owed. The minimum penalty for filing more than 60 days late is either 100 percent of the tax bill or $135, whichever amount is smaller.
Compare that five-percent penalty with the penalty for simply paying late. The late payment penalty is just 0.5 percent of the taxes owed per month. That means that individuals should be especially careful about filing their tax returns on time this year as the costs for not doing so add up quickly.
Getting an extension
However, for those who are running out of time, there is good news. The IRS allows just about anyone to get an automatic six-month extension on filing their taxes. Getting an extension is actually pretty easy and can be done electronically or by mail by submitting Form 4868. The good thing about extensions is that they are automatic so whoever applies for one gets it. However, getting an extension does not extend the deadline for actually paying taxes, it merely extends the deadline for filing them.
As Forbes points out, there is some debate about whether taking an extension increases or decreases one’s chances of being audited. While taking an extension may feel like it will make one a target for the IRS, it could actually give one extra time to ensure no mistakes are being made on the return. By decreasing errors on a tax return, one may actually be able to decrease the odds of being targeted for an audit.
Tax law help
Taxes are stressful, to say the least. Anybody who has a tax problem, such as unfiled returns or an outstanding debt to the IRS, should contact a tax attorney today. An attorney can negotiate with the IRS on the client’s behalf, thus helping the client achieve a favorable outcome and, hopefully, help them lower the bill they owe to the IRS.