Why does April 15th always come upon us like a thief in the night? Without fail you can find me every year finishing my taxes or my extension at the 11th hour. My CPA is practically begging me to get him what he needs until he gives up out of absolute frustration and files the extension on my behalf. Is there anyone out there that can relate to this? I am an expert tax procrastinator and it is largely because I am a terrible book keeper. I am adding “Stop procrastinating” and hire a bookkeeper” to my 2015 New year’s resolutions. I know several ways to deal with the IRS and even more ways to beat them – legally of course. (See my previous blog for tax deductions that you may not know about when buying a home. ) But after all these years of paying taxes and dealing with the IRS, I have not found a way around paying the penalties for filing late. If you have a strategy other than filing on time please let me know. But for now everyone should know that paying your taxes late means paying penalties and fines.
Two penalties apply for filing late and owing taxes. One is a failure-to-file penalty while the other is a failure-to-pay penalty. Penalties for the former are usually more expensive than the latter, maybe around 10 times more. Failing to file your taxes would mean a penalty of 5% of the unpaid taxes for each month. So if you cannot pay what you owe by the due date, you still need to file your tax return and pay what you can. Get a loan, pay by credit card or work out a payment plan with the IRS. Filing your tax return more than 60 days after the due date can be $135 or 100% of the unpaid tax, whichever is smaller.
Aside from penalties for failing to file, the IRS will slap you with interest rates for not paying as well. Generally, it is 0.5% per month of your unpaid taxes which start on the day after taxes are due. Those who forget to file and forget to pay will have a maximum penalty amount of 5% for that month. This will apply each month or part of a month your taxes remain unpaid. By law, late payments cannot exceed 25% of the unpaid taxes. So you can imagine the extra money the government makes from people who file late and pay late.
However, the IRS may not be as heartless as they seem since you can request for an extension of time to file and pay for your income tax return. As long as you can show reasonable cause for not filing and paying on time, you may not be hit with as much penalties as you should. Do yourself a favor and handle your taxes better by filing on time and paying on time so you are not forced to hand over more money to the government. Money hard is come by these days. It makes no sense to give Uncle Sam more than he is entitled to in penalties and fines. If you didn’t file on time this year well there is always next year to start a new tradition. You can do it. The Power Is Now.