Making The Mistake of Filing Your Tax Return Late

When you file your tax return late, three negative consequences occur.

You can file your tax return throughout the term of extension; this is not considered a late-filed return.

The late-filed return is filed after the previous extension has expired. That is the root cause of the three negative events that occur.

Problem Number 1

The Internal Revenue Service notifies you that you filed late or did not file at all.

Of course, the IRS sends a letter to those who claim they did not submit their taxes at all, telling them to “come on down and bring your tax paperwork.” In general, the meeting with the Internal Revenue Service (IRS) over unfiled tax returns did not go well.

The biggest concern for those who file late is the possibility of being subjected to an IRS audit. Consider the following scenario: you belong to the 3 percent of the population that the IRS audits, yet you file your tax return late. Your chances of being audited by the IRS rise considerably, maybe reaching 50 percent or greater.

Simply put, bad thing number one is that you will increase your chances of hearing the words “Hello, IRS examiner” if you file your tax returns late.

Problem Number 2

When you file late, you are subject to a penalty of 5 percent every month, up to a maximum of 25 percent of the amount of tax owed.

The bad news is that the rate is increasing by 5 percent every month. The good news (if you can call it that) is that this penalty is limited to a maximum of 25 percent.

Example. You are a year late in filing your taxes, and you owe $10,000 in taxes plus a $2,500 penalty, which is not deductible.

Problem Number 3

The penalty for “failure to file” is usually coupled with liability for “failure to pay,” so it’s probable that you owe both fines. The failure-to-pay penalty is equivalent to 0.5 percent of the tax due every month, up to a maximum of 25 percent of the tax owed.

The penalty for failing to pay cancels out the liability for failure to file, resulting in a maximum sentence of 5 percent for the first five months of the year in which both penalties are applicable.

However, once the five-month grace period has expired, the penalty for failing to pay will be assessed. Suppose you do not file and pay your taxes on time. In that case, you may owe 47.5 percent of the total tax payable (25 percent plus 0.5 percent for the additional 45 months it takes to get to the maximum failure-to-pay penalty of 25 percent).

In addition, if you are required to pay taxes and penalties for failure to file and failure to pay.

You are required to pay interest on both the late taxes and the disadvantages, beginning with the date on which the return was originally due.

The government is likewise adding salt to the wound. There are no tax deductions available for the fines.

The Best Way to Get Away

Suppose you can demonstrate that you had a justifiable basis for filing late and were not guilty of deliberate negligence. In that case, you may be able to escape the penalty. However, this is not a simple task.

According to the taxpayers in the case of Elick, where late filing was one of several issues, they failed to demonstrate “reasonable cause without willful neglect.”

They claimed that their late filing was caused by the failure of a third party to issue a K-1 that they required to complete their tax return.

The court determined that the Elicks were responsible for timely submitting their forms and that passively waiting for third-party information was not a valid excuse for a late submission. The court stated that if the Elicks had proved that they actively sought the K-1 information or could not produce a fair tax estimate, the court might have reached a different conclusion.

In Lamb, the taxpayers said they relied on their counsel to draught and file their tax return and were denied. Even if this were true, the court stated that it was not a viable explanation for the Lambs’ failure to file their paperwork on time.

Things to do:

Foolproof method: Tax returns must be filed on time, and taxes must be paid in full to avoid penalties and interest.

Faint-hope method: According to IRS regulations, if you can demonstrate that you used ordinary business care and prudence but were still unable to complete your tax return on time, you may be exempt from paying the penalty.

Putting The Pieces Together

Don’t be caught in a bind by missing the filing deadline. Even if you are unable to pay on time, you should still file. It eliminates the dreaded 5 percent each month penalty.

Furthermore, by submitting on time, you reduce your chances of being audited by the IRS.

If you have a legitimate reason for not submitting on time, file it as soon as possible and make your case to the Internal Revenue Service for penalty relief.

If you cannot make your payment on time, you can consider using the IRS installment payment plan.

An important point. Take the initiative in this matter. Don’t allow the Internal Revenue Service (IRS) to come to you.

How do you feel about it? Do you want someone to manage your finances on your behalf? By clicking on the link, you will be sent to our online reservation system, where you may chat with a member of our team and receive a free first consultation. We’re hoping to bump into each other there!

Scroll to Top