It is important for everyone to understand the penalty for late taxes, so they can avoid owing additional money to the IRS. Every year, an estimated 7 million Americans won’t file their taxes on time. Filing taxes late can seem tempting, especially those people who know they’ll owe money. If you want to understand how much the interest and penalty will be for filing taxes one day late, here is what you need to know.
Penalty for Late Taxes | Understanding the Policies of the IRS
What are the Penalties for Filing Taxes Late?
The IRS will penalize you for filing your taxes late. This penalty applies to any money owed that isn’t paid by the filing date. It is calculated as 5 percent of the unpaid taxes per month or part of the month. If you don’t pay within 60 days of the due date, you will pay a minimum of $135. If you file your taxes late, it is important to realize this won’t be your only penalty. Find out how to calculate IRS interest on unpaid taxes.
Understanding the Penalties for Paying your Taxes Late
The IRS doesn’t only charge penalties for filing the taxes late. There are also penalties for those who file their paperwork but haven’t paid their taxes due by the due date. This penalty is also calculated based on any money owed the IRS you don’t pay by the due date. Typically, the penalty consists of 0.5 percent of the taxes owed for each month they remain unpaid. This penalty won’t exceed 25 percent of the total tax due.
Understanding the Interest that Builds on Your Unpaid Tax
The penalties won’t be the only additional money one will owe for unpaid taxes but it will build interest as well. The IRS late payment interest rate is calculated by the IRS. The IRS determines this rate according to the federal short-term rate. They take this percentage and add 3 percent to determine the unpaid tax interest rate.
The interest you owe on your taxes is calculated for each day you don’t pay everything. The amount you owe the government can get bigger very quickly between the penalties and the interest. The earlier you make payments, the less you will owe.
Is There Any Way to Avoid the IRS Late Payment Penalties?
The IRS typically has strict policies regarding on-time payments. There are a few instances where they might waive the penalties. If you can prove your payments or filing was delayed because of a major disaster or illness, for example, you might be able to convince them to waive any penalties you earned. Ideally, everyone must work to pay their taxes on time or follow the proper procedures to get an extension.
How Do I File an Extension?
If a taxpayer knows their payments or filing will be late, they shall file a filing extension. This will allow them to avoid the penalties. With this paperwork, they’ll be able to find more time to complete the tax filing and find the money for any taxes due.
It is important to note that you can request an extension even after you already completed your return. For example, if you file your return and then learn you owe money, you can request an extension to file and pay later. This will prevent the penalties to build up and will lessen the total amount you must pay.
You can also avoid penalties for late payment with an extension. For this extension, you must pay at least 90 percent of what you believe you owe. You can then file for an extension for rest of the tax. You will have to pay the balance before the October extended deadline.
Here’s a video of what you need to do, so you can avoid paying penalty for late taxes courtesy of GBR:
Americans prepare to pay their taxes every spring. Filing the required paperwork and then making more payments to the IRS is never fun. However, failing to meet the deadlines can result in higher fees. Those considering their options shall remember they can file for an extension as this will allow you to avoid penalties. Also, this will give you more time to pay back the government. Hopefully, this helped you better understand the policies of the IRS, so you’ll avoid getting a penalty for late taxes come payment time.
Have you started preparing for your tax payments? Let us know in the comments section below.