There are many reasons why people file their federal taxes late, whether the person opts to file them electronically or on paper. No matter what your reason is, taxes are due on April 15th each year, and you need to either complete your tax return or pay what you owe. In the event that you know ahead of time that you cannot file your taxes before the deadline, there are steps you can take before April 15th. If you do not request an extension, you will be faced with penalties until your taxes are paid in full.
How to Avoid a Penalty
If you know that you will not be able to file your tax return before the April 15th deadline, you can request an extension by completing the Form 4868 (the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) and filing it with the IRS by April 15th. This will provide you with a six month, penalty-free extension allowing you until October 15th to file your tax return. Without filing this extension form, you run the risk of facing heavy fines and interest penalties until your outstanding balance is paid.
Penalty for Not Filing Taxes
If you opt not to file a deadline extension form or simply decide not to file taxes before April 15th, you will be hit with a penalty until your taxes are paid off. There are two types of penalties for not filing taxes: a late filing penalty and a late payment penalty.
A late filing penalty results in a penalty rate of 5% for each month or partial month that the payment is late, with a maximum penalty of 25%. If you previously filed a Form 4868 before April 15th, you will not receive this penalty unless you miss the new due date of October 15th. The late filing penalty reaches the maximum penalty after five months, but continues at a penalty of 0.5% for each month up to 45 additional months. If you wait the entire period of time, this can result in a total of 47.5% penalty. This penalty is based on the amount required to be shown on the return, not the amount shown as due. Also, if you are audited and the actual tax liability is higher than the original balance, you will have to pay the late filing penalty on the difference.
The late payment penalty is the lesser of the two penalties. If your payment is received late when filing back taxes, you will be paying a penalty of 0.5% for each month or partial month that the payment is late, with the maximum penalty of 25%. For example, let’s say you were supposed to pay $2,000 in taxes when filing your tax return but did not make that payment until July 6th. Your penalty would be 2% since you receive 0.5% penalty for April, May, June, and July. The late payment penalty you would need to pay would be $40.
Since a simple error on your tax return can result in being audited, this could work in your favor if you are paying a late payment penalty. If your balance due is found to be higher through the audit, you do not have to pay an increased late payment penalty. If your balance is found to be lower through the audit, the IRS will reduce your late payment penalty to be based on the new balance. Using the example from above, let’s say that your lowered balance through the audit is only $800 instead of $2,000. With a 2% penalty, you now owe $16 instead of $40.
Late filing of federal taxes can result in hefty fines, so it is important to budget appropriately during the year to make sure you can pay off your taxes on April 15th.