Tax season can be stressful enough as it is. But when you’re facing penalties for filing late, the stress only intensifies. Knowing what penalties to expect can help you understand the consequences of filing late. At the same time, it will motivate you to file on time.

What Penalties to Expect Filing Taxes Late

We’ll turn directly to the IRS to outline what they say about late filing fees to ensure you get the most accurate information.

The failure-to-file penalty: tax penalties for filing late

As the IRS website outlines, this penalty is “usually five percent of the tax owed for each month, or part of a month that your return is late, up to a maximum of 25%.” They also add that when your return is more than 60 days past due, you’ll also have a minimum penalty for filing late: which will be a “lesser of $450 (for tax returns required to be filed in 2023) or 100 percent of the tax owed.”

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The failure-to-pay penalty

In addition to the failure-to-file penalty, there is also a failure-to-pay penalty. This applies when you owe taxes but can only pay them after your due date.

The IRS website states that this penalty is:

  • “0.5% of the tax owed after the due date, for each month or part of a month the tax remains unpaid, up to 25%.
  • You won’t have to pay the penalty if you can show reasonable cause for the failure to pay on time.
  • 10 days after the IRS issues a final notice of intent to levy or seize property, the 0.5% rate increases to 1% per month.
  • The penalty rate is 0.25% for each month or part of a month in which an installment agreement is in effect.”

Interest on Unpaid Taxes

It’s also helpful to note that the IRS will charge you interest on unpaid taxes. This rate increases or decreases every three months and is based on short-term interest rates—higher than most banks offer. For taxpayers (but not corporations), the interest rate will be the federal short-term rate plus 3%To see the current quarterly interest rate on underpayments, search “interest rates” on the IRS Newsroom Search or search “quarter interest rates” on IRS.gov Site Search.

Tax bill vs. Rax Refund

Finally, remember one of the potential consequences of filing late is getting your refund much later than you might if you file it on time.

But what happens if you don’t have the funds to pay your taxes on time, even though you know the penalties that can come with this? Again, there are some different options to explore, and we’ll discuss them next.

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Options for Paying Unpaid Taxes

If you can’t pay your taxes in full on the due date, a few options are available to you. One such option is online payment plans with the IRS.

  • Short-term payment plan: Payment must be made within 120 days or less, and the amount to pay will not exceed $100,000 with taxes, penalties, and interest included.
  • Long-term payment plan: The payment period is over 120 days, paid in monthly installments, and the amount owing is under $50,000 in combined tax, penalties, and interest.

Some people don’t qualify for online payment plans. In this case, you can also request an installment agreement (IA).

How to Avoid IRS Tax Penalties for Filing Late

The best way to avoid an IRS failure-to-file penalty is to file on time, every time. For most people, the due date for filing their taxes in the United States in 2023 is Tuesday, April 18. However, if you cannot file by then, you might file an extension using Form 4868 from the IRS. Accepting this will give you six more months to file your taxes.

Even if you file an extension, you may still be subject to interest charges and penalties. So the safest bet is to get your taxes filed on time!

Final Thoughts: Tax Penalties for Filing Late

In conclusion, several penalties are associated with filing or paying late. These include a failure-to-file penalty, failure-to-pay penalty, and interest on unpaid taxes. To avoid these consequences, it’s wise to ensure your taxes are filed on time and any owed amount is paid in full by the due date. If this isn’t possible, explore options for payment plans or installment agreements with the IRS. Being aware of these potential consequences will help taxpayers decide whether they should file late or on time.

As your Denver-based business lawyers, Contiguglia Law Firm is here to help guide you through the tax filing process and answer any questions about potential penalties. Contact us today for more information. 

With Contiguglia Law Firm, you can rest assured that your business’s taxes will be handled in compliance with all applicable laws and regulations. 

Tax season is quickly approaching. Call now to learn more about our services and how we can help.

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