Think about this. You wouldn’t show up late for your wedding (hopefully). You wouldn’t show up late for your flight or cruise departure, right? The reason you are on time is that the consequences could be embarrassing, painful, and costly.
Filing a late tax return or form is no different—missing an IRS deadline may, in fact, cost you more in fees and penalties than the initial tax would have been.
Here are some examples of what could happen if you have been procrastinating.
You may think “Hey, the IRS owes me, so no rush.” Wrong. You will be charged penalties, even if you don’t owe any tax. The late penalty for filing your return more than 60 days after the due date is a minimum $135 or 100% of the unpaid tax (if you owe)—whichever is smaller. Not too bad, but it gets worse.
If you do owe taxes, the penalty for filing late is usually 5% of the unpaid taxes for each month your return is late, not to exceed 25% of your unpaid taxes. It doesn’t matter if you are one day or 30 days late, the 5% penalty kicks in as soon as you have missed the deadline.
In addition, if you do owe taxes and pay late, you also get hit with a failure to pay a penalty of ½ of 1% of your unpaid taxes for each month or part of a month after the due date, up to 25% of your unpaid taxes.
It is possible to file an extension, but you need to pay at least 90% of the taxes you owe by the tax deadline to avoid a penalty. You don’t have to pay a penalty on the remaining balance if you pay it on or before the extension deadline.
And let’s not forget about the penalties for not reporting foreign income or assets. The penalties for late filing of certain forms can be exorbitant. For example, if Form 5471, which is required to be filed by certain shareholders and officers of foreign corporations, is not timely filed the IRS can assess a penalty of $10,000 per month even if no tax is due!
And that is just the penalty for a foreign corporation, there are similar – and in some cases more severe – penalties for not reporting foreign partnerships, foreign disregarded entities, and foreign trusts. And don’t forget that many foreign pensions are considered foreign trusts!
If you fail to file an FBAR (Report of Foreign Bank and Financial Accounts) the penalty can be $10,000 for non-willful violations. If the failure to file was willful, the penalty may be $100,000 or 50% of the amount you failed to report – that is per account and per year! So the total penalty could be more than you had in your account!
On occasion, you might be able to convince the IRS that you that you had a sound reason for not filing/paying by the deadline. If you can, they may consider waiving the failure to file or failure to pay penalty. But, do you want to take the chance?
We are sure you would agree that the IRS already takes a pretty good piece of your income so why give them more. As we have pointed out, the IRS is very serious about the filing and collection process. If you have a tax deadline nearing, don’t put off the inevitable—gather your paperwork and call Esquire Group for an appointment today.