What You Don’t Know About Late Tax Returns Can Cost YouPosted on March 11th, 2016
We’re at the time of year when many people are stressed about their tax returns. They’re pondering whether their records are in order, worrying about how much they’ll owe, and wondering how they’ll find the time to get everything done. We’ve developed the following short quiz to show the importance of making the effort now to get tax returns filed on time.
- True or False–If a taxpayer doesn’t file a tax return and owes taxes, they’re essentially just taking out a loan from the IRS.
False. Two penalties must be considered for a taxpayer who files late and owes federal taxes. Yes, there is a failure-to-pay penalty that is charged because taxes were not paid when due, which is similar to paying interest on a loan from the IRS. However, there is a failure-to-file penalty that is charged because no tax return was filed by the due date.
Also, not paying taxes when they’re due is NOT just like taking out a loan from the IRS. While the IRS allows most taxpayers the ability to set up an installment agreement, taxpayers must apply for that agreement. If a taxpayer chooses to allow a tax obligation to go unpaid, they can expect to receive notices from the IRS, which may ultimately result in a tax lien and a negative impact on the taxpayer’s credit history.
- True or False–Since the IRS is primarily concerned about getting paid, the failure-to-pay penalty is larger than the failure-to-file penalty.
False. The failure-to-file penalty can be up to 10 times as expensive as the failure-to-pay penalty. In most cases, the failure-to-file penalty is 5% of the unpaid taxes for each month (or portion of a month) that a tax return is late, and the failure-to-pay penalty is 0.5% for each month (or portion of a month) that taxes go unpaid. There are limits to what the IRS can charge for these penalties, but each can increase a taxpayer’s bill by as much as 25%, or 50% combined, of the original obligation.
- True or False–Filing an extension completely resets the clock on failure-to-file and failure-to-pay penalties.
False–That statement is true as it relates to failure-to-file penalties, but not for failure-to-pay. While an extension provides a taxpayer extra time to file returns, it does not extend the time available to pay taxes due. A taxpayer will owe interest on any amount not paid by the original deadline.
- True or False–The IRS accepts checks, debit card, or credit cards as payment for taxes.
True. Additionally, the IRS permits taxpayers to authorize electronic funds withdrawals from a checking or savings account and provides most taxpayers the ability to set up an installment agreement.
With Cilliers CPA, there’s no reason to wait, and no reason to worry about where you’ll find the time to get it all done. Schedule a consultation today to discuss how Cilliers CPA can help you meet tax compliance requirements, minimize tax payments, and accomplish your goals, all within a personal, friendly environment where relationships are valued.