What Are the Penalties for Filing Taxes Late?

April 13, 2012 by  Filed under: Taxes 

One of the reasons you shouldn’t put off filing your taxes is the penalties that can accompany unfiled returns and unpaid tax debts. They can often be quite severe. You should know, however, that the penalties are not universal – they depend on the particulars of your individual tax situation.

First of all, if you are due a refund, you won’t have to pay any penalties. In fact, if you file your return within three years of its original due date, you can actually still get your refund. After that three year period, you won’t be able to get any money but you still won’t owe any penalties.

Many people are under the impression that all late taxes, even those that result in a refund, will be penalized and so they don’t get the money they are entitled to. That’s simply not true – if you are due a refund, there’s no reason not to file your late taxes.

Late filers who owe are not so lucky and could be subjected to three different types of punitive charges:a failure-to-file penalty, a failure-to-pay penalty, and interest.

You incur the failure-to-file penalty when you do not file your return by the deadline, normally April 15, or October 15 for those who request an extension.

The failure-to-file penalty is pretty hefty, amounting to 5% of your unpaid tax liability for every month (or part of a month) the return is late. The penalty will not, however, exceed 25% of your total tax liability.

The failure-to-pay penalty punishes you for not paying your tax liability. If you don’t file at all you will suffer this penalty and if you file but don’t pay what you owe you will also suffer this penalty.

It is a lesser penalty than its failure-to-file counterpart, amounting to 0.5% of your unpaid tax liability for every month (or part of the month) that your tax debt remains unpaid. This penalty also will not exceed 25% of your total tax liability.

Finally, you will have to pay interest on your unpaid tax liability in addition to the failure-to-pay penalty. Currently the interest rate for underpayment stands at 4% per year.

Note that this interest rate is variable and can change every quarter. It is set at the federal short-term rate plus 3%.

As you can see, the failure-to-file penalty is significantly more severe than the failure-to-pay penalty. Therefore it makes sense to file your return even if you can’t afford to pay the taxes you owe. If you truly can’t afford to pay, the IRS will work out an installment agreement with you that allows you to make monthly payments over an extended period of time.

Don’t delay filing past year tax returns any longer. You can save yourself money by filing as soon as possible.

Visit PriorTax.com to take care of your 2010 tax preparation and find out if a refund could be waiting for you.

Article Source:
http://EzineArticles.com/?expert=Curran_M_Boomer

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