4 Facts about Late Filing and Late Payment of Taxes

If you didn’t file your 2014 tax return by April 15th, we hope that you asked us to file an extension for you. You don’t have anything to worry about if you’re due a refund. But if you owe taxes and didn’t file an extension, you may have to pay penalties for late filing and late payment and also pay interest on the late taxes you pay. Here are four things you need to know about late filing and payment:

  1. File your tax return as soon as possible. The sooner you file, the less you have to pay in penalties.
  2. Determine if you have reasonable cause for not filing.  You will not have to pay a failure-to-file or failure-to-pay penalty if you can show reasonable cause for not filing or paying on time. Reasonable cause is a very broad category that can be difficult to substantiate. The burden of proof falls on showing that there was not ‘willful neglect’ in the lack of timely filing.
  3. Understand when a penalty applies.  Filing an on-time request for extension and paying at least 90% of taxes owed helps you avoid both a late filing and late payment penalty. The remaining balance of tax due must be paid by the extension date. You will also owe interest on any taxes you pay after the original April 15 due date.
  4. File even if you don’t have the money to pay. In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if you can’t pay in full, you should file your tax return and pay as much as you can. Whatever you pay will stop the clock on the amount of the penalties. Also, the IRS will work with you to help you resolve your tax debt. If you have to pay, here are the guidelines:
Late Filing Penalty Late Payment Penalty If Both Penalties Apply
Typically 5% of unpaid taxes for each month or part of a month that a tax return is late. Maximum amount is 25% of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100% of the unpaid tax. Typically 0.5% per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due (April 15, 2015). Penalty can accrue up to 25% of your unpaid taxes. Maximum 5% per month if both penalties apply in the same month.

Please talk with a Salmon Sims Thomas tax advisor if you have questions about filing or payment penalties. We’re here to help you with your tax, audit, and consulting needs.