[cs_content][cs_element_section _id=”1″ ][cs_element_layout_grid _id=”2″ ][cs_element_layout_cell _id=”3″ ][cs_element_image _id=”4″ ][cs_element_text _id=”5″ ][cs_content_seo]Can you file on time and still owe late payment penalties? Yes.
Late Filing and Late Payment Penalties:
With the coronavirus came changes to how we live and perform everyday activities, including filing our taxes. The Internal Revenue Service (IRS) announced Wednesday that it is pushing back the filing deadline for 2020 returns from April 15 to May 17, 2021.
Still, if you think you’re going to miss that tax deadline, it’s essential to understand how that will impact you and your finances and what you should do to minimize the costs and consequences. Only then can you quickly move forward and get back to the things that matter.
Here’s what you should know:
If you are due a refund, there is no penalty if you file a late tax return. If you owe tax and failed to file and pay on time, you will most likely owe interest and late penalties on the tax you pay late. To keep interested and late penalties to a minimum, you should file your tax return and pay the tax as soon as possible. Here are some facts that you should know.
Two penalties may apply. One penalty is for filing late, and one is for paying late. They can add up fast. Interest accrues on top of the penalties.
Penalty for late filing. If you file your 2020 tax return more than 60 days after the due date or extended due date, the minimum penalty is $205 or, if you owe less than $205, 100 percent of the unpaid tax. Otherwise, the penalty can be as much as five percent of your unpaid taxes each month up to a maximum of 25 percent.
Penalty for late payment. The penalty is generally 0.5 percent of your unpaid taxes per month. It can build up to as much as 25 percent of your unpaid taxes.
Combined penalty per month. If both the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5 percent per month.
An extension does not apply to the payment. You thought you were good until October 15 because you filed an extension in time, right? Not necessarily. If you owe tax, an extension does not extend your time to pay– it only extends the amount of time you have to file. If you think you owe, make an estimated payment or pay 110% of your 2020 tax liability to fall under the safe harbor.
File even if you can’t pay. You are filing on time and paying as much as you can to keep your interest and late penalties to a minimum. If you can’t pay in full, getting a loan or paying by debit or credit card may be less expensive than owing the IRS. If you do owe the IRS, the sooner you pay your bill, the less you will owe.
Payment Options. Explore your payment options on the IRS website at IRS.gov/payments. IRS Direct Pay is a fast and free way to pay directly from your checking or savings account for individuals. You can also mail a check (also free) or pay with a debit/credit card for a fee through a third-party site. The IRS will work with you to help you resolve your tax debt. Most people can set up a payment plan using the Online Payment Agreement tool on IRS.gov.
Late payment penalty may not apply. If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you might not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the due date.
Always keep in mind the two types of penalties: late filing and late payment.
Let’s chat. You can book an appointment here.\n\n[/cs_content_seo][cs_element_layout_row _id=”6″ ][cs_element_layout_column _id=”7″ ][cs_element_button _id=”8″ ][cs_content_seo]Book Your Assessment Today!\n\n[/cs_content_seo][/cs_element_layout_column][/cs_element_layout_row][cs_element_headline _id=”9″ ][cs_content_seo]Miguel A. Palma, CPA, PFS, CGMA\n\n[/cs_content_seo][cs_element_text _id=”10″ ][cs_content_seo]Founder of Palma Financial Services, Inc.
Palma Financial Services, Inc. (“PFS”)has helped small business owners minimize income taxes and build wealth since 1998.
PFS has achieved positive results for its clients, but our top clients’ successes are not typical. Because past performance is not a predictor of future success, you may have more or less success depending on many factors, including your background, experience, work ethic, client base, and market forces. Additionally, at times we may discuss the law or new and pending legislation. Please know our understanding of it is continuously changing. You cannot and should not rely upon these communications for legal, financial, or accounting advice. For the latest updates, set up a time here.