Photo by The New York Public Library
As of right now, chances are your 2020 tax return must be filed by April 15th, 2021.
In 2020, the IRS extended the tax filing deadline to July 15th. While this may change, you need to be prepared to file your taxes on time.
If you don’t file your taxes on time, you will need professional tax advice. You can also end up paying out of pocket.
Keep reading to learn more about what really happens if you don’t file your taxes on time – and how to make sure your taxes get taken care of by the deadline.
Penalties for Late Payments
If you file your taxes on time but don’t pay your taxes on time, you could face a late payment or failure to pay a penalty from the IRS.
The IRS charges a failure to pay penalty if you don’t pay your full tax bill by your due date. This amount is .5% of your unpaid bill for each month or part of a month that your bill goes unpaid. The max amount you can incur is 25% of the amount you still owe.
This penalty applies if you have filed your taxes but haven’t paid what you owe.
Penalties for Filing Late
If you miss the deadline to file your taxes altogether, you could face steeper a steeper penalty.
The IRS imposes a late filing fee of 5% of the amount you owe for any amount that remains unpaid after the filing date. This penalty is charged as a percentage of each month or part of a month that your return is late. The most you will pay is 25% of the amount you owe.
This type of penalty starts accruing on April 15th, unless you are granted an extension. If you file an extension, you will have until October 15th. At that time, this late filing penalty will go into effect.
This penalty will continue to accrue until you file your return. If you find yourself in this situation, it’s important to file your return as soon as possible. If you wait more than 60 days after the due date to file, the penalty gets even worse.
If 60 days pass and you haven’t filed your return, you will face a penalty of at least $435 or 100% of the amount you owe, whichever is less.
It’s important to note that if you don’t owe taxes and are instead owed a refund, you won’t incur a penalty for filing late. After all, the IRS owes you at that point. It’s better to file by the deadline, or as soon as possible, so you can get back the money you overpaid.
What if You Don’t File or Pay?
If you don’t file or pay your taxes by October 15th, or five months after the filing deadline, the failure to file penalty will max out.
However, you will continue to face the failure to pay penalty until you pay your taxes. The maximum penalty still remains capped at 25% of what you owe.
How Interest Works
If you owe taxes and fail to pay by the due date, you will also accrue interest on your unpaid bill.
IRS interest compounds daily. It begins accruing on the day your taxes are due and continues until your tax bill is paid off.
The IRS sets interest rates each quarter or every three months. The interest rate is based on the federal short-term rate with 3 percentage points added. The interest rate is reviewed each quarter to keep up with a changing economy, but the rate won’t necessarily change each quarter.
The interest rate for the first quarter of 2021 will be 3%.
Can Tax Penalties be Waived?
It is possible to have tax penalties waived if you qualify based on your circumstances.
The IRS has a policy called the First Time Penalty Abatement policy. You might qualify if you have not had any penalties in the previous three tax years. You had to have filed your tax return on time and paid any taxes you owe or agreed to a payment plan with the IRS.
If you file late and you can prove there is a legitimate reason for your late filing and payment, the IRS might waive your late payment penalty.
Requesting an Extension
If you think that you won’t be able to file or pay your taxes on time, you should file an extension as soon as possible.
You must request an extension before your filing deadline. If you are granted an extension, you don’t have to wait until October to pay your taxes if you are able to file and pay before then.
When you request an extension, it’s always a good idea to make a payment on the amount you plan to owe with your request, if you can.
If you’ve completed your tax return and you owe taxes you can’t pay right away, you might want to request an extension. Not only will you have more time to pay and avoid the failure to pay penalty, but you can also seek tax advice from a professional to make sure you haven’t overlooked something that could reduce your tax liability.
If you have been affected by the winter storm in Texas this year, you already qualify for an extension. Your new tax filing deadline is June 15th and you don’t need to submit a request. This extension applies to individuals as well as businesses.
Get Professional Tax Advice Today
As of right now, the majority of Americans need to file their taxes by the regular deadline of April 15th.
The past year has been complicated for many individuals and businesses and there has been legislation passed that may affect your tax return. There’s never been a more important year to ensure your tax return is filed correctly.
If you’re like most Americans, you can’t afford to incur a penalty. Stay on top of your taxes and stay compliant this tax season by seeking tax advice from a professional.
We have dedicated our careers to helping businesses and individuals get the most out of tax season. Click here to contact us today and learn more about how we can help you.