It’s that time of year again — tax season. When it comes to filing your taxes, do you wait until the last day? File an extension? Although some people say they work best under pressure, forgetting to file your taxes can result in costly consequences that extend well beyond your bank account. Read on to learn important information about potential penalties of not filing your taxes.
IRS Penalties for Not Filing a Tax Return or Not Paying Taxes Owed
Taxes are due at midnight on April 18, 2017 — but what happens if you don’t file your tax return by the due date? Here is important information to keep in mind:
- When do penalties apply? If you owe taxes but do not file a tax return on time or do not ask for an extension, you will incur penalties and owe the IRS interest. Similarly, if you file your tax return on time, but do not pay the taxes you owe by the tax deadline, you will incur penalties as well.
- When don’t penalties apply? Penalties typically don’t apply if you are expecting a refund and do not file a tax return on time.
It is important to remember that the penalties for not filing a tax return or a tax extension are higher than not paying the taxes that you owe. It is always better to file your tax return and pay as much as you can afford than not filing at all.
What Is the Penalty for Filing a Tax Return Late?
If you file your tax return past the deadline of April 18, 2017, and you do not get an extension, you will be assessed a penalty of five percent of what you owe each month. This is known as a failure-to-file penalty and will be reduced by the amount you owe for failing to pay your taxes each month. The maximum amount you will owe for filing late will be 25 percent of your unpaid taxes, but if you file more than 60 days late, your minimum failure-to-pay penalty will be either 100 percent of your unpaid taxes or $205 — whichever sum is smaller.
Will I Face Penalties for Paying the Taxes I Owe Late?
There will a penalty assessed of 0.5 percent of your balance due each month that you are late paying taxes owed — even if you file an extension. The amount of your failure-to-pay penalty will not exceed 25 percent of back taxes. Additionally, there is a four percent interest placed on underpayment of taxes.
What If I Can’t Pay the Taxes or Penalties I Owe?
If you can’t pay your taxes by the tax deadline, there will be penalties. This can create a stressful situation for individuals who cannot pay and then also have to worry about the added penalties. If you find yourself in this situation, here are potential options.
- Find an alternate method to pay: Some individuals use a credit card loan to pay their tax bill. Although this often results in interest on the credit card, in many cases, the interest is less than the IRS penalties.
- Make a payment plan with the IRS: If you cannot pay your taxes owed, you can make a payment plan with the IRS. You can get a short-term extension of time to pay, enter into an installment plan, or make an offer-in-compromise. You can learn more about IRS payment options here.
Ultimately, the most important takeaway from doing your taxes is even if you cannot pay the full amount of your tax debt on time, you should file your tax return or tax extension on time. This will help you avoid greater penalties.
Can I Go To Jail for Not Paying Taxes?
Ultimately, failing to pay your taxes or file a return claim is a crime. With that in mind, however, the IRS would rather work with you to reach a settlement before filing criminal charges. If you earn your income via illegal sources or if your behavior is fraudulent, the IRS is more likely to recommend prosecution.
Facing Tax Trouble? Schedule a Free Consultation
If you’re facing legal trouble, contact the team at Clark Law today to schedule your free consultation.