Let’s be honest, nobody really loves doing their taxes. Whether you are filing as an individual, business, or charity, taxes can present a burden unlike any other. They can cause worry and anxiety and cause you to panic. Due to this, some people put off doing their taxes until it is too late. If you are thinking about going down this route, or already have, there are some pretty significant penalties for filing taxes late that you should know about. More importantly, you could even end up paying more money than you owe, yikes! Instead, take stock of these two penalties for filing taxes late and avoid them with these simple methods:
- Failure to file penalty
- Failure to pay penalty
Failure to file penalty
The failure to file penalty is exactly what it sounds like. If you don’t file your taxes in time you will be hit with this penalty. According to the IRS, you will be hit with “5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty won’t exceed 25% of your unpaid taxes.” However, that’s not all though, interest will be charged on this penalty as well. For most cases, you’ll start accruing interest on the due date for the amount of taxes you owe, even if you file an extension of time. If this happens to you, you’re likely to experience the other penalties for filing taxes late. It truly does pay to file your taxes early.
Failure to pay penalty
Often these penalties for filing taxes late go hand in hand, when you fail to file you also fail to pay your taxes by the due date, although that’s not always the case. If you file your taxes but fail to pay, according to the IRS, you may be subjected to penalties such as “The Failure to Pay Penalty.” This penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. The penalty won’t exceed 25% of your unpaid taxes.” You will be subjected to interest on these penalties as well. If you receive both of these penalties you will still need to pay both penalties for filing taxes late, although there is a caveat. Your failure to pay will be included in your payment and subtracted from the total you have to pay for your “failure to file” penalty.
Here’s how to avoid penalties for filing taxes late:
- Apply for an extension
- Apply for a payment plan
- Work with a CPA firm
Apply for an extension
If you are going to be late on filing your taxes, it’s best to ask for an extension. An extension will grant you more time to file, usually until October, although that can be subject to change depending on your circumstances and the year. You’ll also need to fill out different forms depending on how you are filing, whether as a business or personal. You may need to apply for an extension for a variety of reasons because taxes can become so complicated. The best course of action, however, is to be proactive when it comes to filing and dealing with your taxes, even if you can’t pay them right away.
Apply for a payment plan
The IRS does offer individuals and businesses payment plans even if you have penalties for filing taxes late. However, to get the best payment plan options, you won’t want to incur any penalties. Instead, you’ll need to go ahead and file your taxes and then contact the IRS about a payment plan. There are different types of plans based on your filing status, how much you owe, and whether you want a short-term or long-term payment plan. You can apply online and an IRS representative will help you sort out what is best for your situation, or what you can realistically qualify for.
Work with a CPA firm
Truth be told, if you don’t want to face penalties for filing taxes late, you should work with a CPA firm year-round. They can help you stay on top of your tax situation and find you the best deductions come tax season. It is vital to your organization that you hire someone with expertise and knowledge about tax law to prevent you from making a mistake. Furthermore, a reputable CPA firm can represent you to the IRS in case you ever get audited. Meaning you and your business are ready for whatever the future might hold.
Are you considering hiring a CPA firm for your taxes? Having trouble maximizing deductions and filing correctly? We’re here to help! At Sheffield, Trackwell, and Rapp, we have licensed CPAs ready to turn your tax season into a worry of the past! Contact us today and find out how we can help you.
