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Late Fees and Potential Penalties for Not Paying on Time

Posted on October 12, 2012 by
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irs-bill-late-fees-penaltiesSix months ago you realized you needed more time to prepare your taxes, so you filed an automatic extension with the IRS. Despite what you may (or may not) have owed, you were still required to pay any taxes owed to the IRS by April 15, 2013. The tax extension gives you more time to prepare a completely accurate tax return, but the IRS will not wait six months to receive the taxes you owe.

If you are due a refund, you will have to file a tax return in order to claim it. You have three years to file and/or amend a tax return before you become ineligible to claim it.

Filing Late – the “Failure-to-File” Penalty

This applies if you didn’t file by the April 15, 2013, or you filed an extension and miss the extension deadline, October 15, 2013.

The penalty is usually 5% of the tax balance due per month or part of a month that a return is late, but not more than 25%. The penalty is based on the tax not paid by the due date (without regard to extensions).

For example, if someone owes $2,000, then the Failure-to-File penalty is $100 a month up to a maximum of $500 (takes 5 months after April 15, 2013).

If you don’t owe any money then there is no penalty. But you should still always file a tax return. If you don’t, the IRS will file a substitute return for you. But this return is based only on information the IRS has from other sources. Thus, if the IRS prepares this substitute return, it will not include any additional exemptions or expenses you may be entitled to and may overstate your real tax liability.

Paying Tax Late – the “Failure-to-Pay” Penalty

The late payment or Failure-to-Pay penalty is applied when you have filed your tax return but didn’t pay the full balance owed.

Beginning the day after taxes are due (for 2012 taxes the deadline is April 15, 2013), you will have to pay a Failure-to-Pay penalty of ½ of 1% (.50%) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. This penalty does not apply during the automatic six-month extension of time to file period if you paid at least 90% of your actual tax liability on or before the due date of your return and pay the balance when you file the return.

For example, if someone owes $2,000, the Failure-to-Pay penalty would be $10 per month or part of a month after the due date that the tax is not paid.

Note: Those in combat zones and those who had been affected by Hurricane Isaac, you have different circumstances. Please review the IRS website for details.

If you owe, it is better to file sooner rather than later. With a Taxbrain account, we’ll help you finish your tax return with free unlimited technical support. Visit Taxbrain to finish your tax return now.

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