Tax Penalties

The deadline to file your federal income tax return is fast approaching. Normally falling on April 15, this year it is on April 17 due to the fact that April 15 is on a Sunday and April 16 is Emancipation Day in Washington D.C., which gives everyone across the nation an extra day to file. With the deadline just days away many Americans will submit extensions to file, pushing the date the tax return is due to October 15. This is a great tool if you know you do know have all of your tax documents in time to prepare an accurate return. An extension, however, is simply for filing of your return, not paying any tax owed. If you do not pay your tax by the April deadline you may incur additional tax penalties on top of the tax owed.

Failure to File

Failure-to-File penalties are one of the harshest tax penalties the Internal Revenue Service can issue against an individual taxpayer. The way they are calculated is as follows: 5% of the taxes you owe for each part of a month you’re late, up to a maximum of 25% of unpaid taxes. So for your 2017 taxes, if you file on April 18th you are hit with a 5% penalty. On May 18th it is another 5% until you reach your maximum of 25%, at which point it doesn’t matter how late you file you will get that 25% penalty.

Failure to Pay

The other type of penalty is the Failure-to-Pay penalty. This tax penalty happens if you owe taxes after the initial filing deadline, April 17, 2018 for your 2017 taxes. The calculation for that is 5% of unpaid taxes for each part of a month you’re late, up to 25% of unpaid taxes due. There is a way to avoid this penalty if you pay 90% of your tax owed when you file an extension to file your return, you are entitled at that point to pay the remaining 10% by the extension deadline without incurring the failure to pay penalty. This penalty doesn’t seem like much but if you have a balance for a long period of time it can cause your balance to sky rocket into something you may not be in a position to handle properly.

Filing Late

It is never a good idea to file your taxes late, but even more so if you owe. Even if you do not owe and are due a refund, it is important to file your taxes as close as to the date they are due as possible. The IRS only grants refunds for the previous three years worth of tax returns. So, before 2017 is officially due on April 17, 2018, you can get your refund if you have not filed and are entitled to it as far back as 2014. The IRS has reported that there are hundreds of millions of dollars that the tax payers are not getting back by not filing their 2014 tax return. After April 17, 2018, the IRS only distributes refund from your 2015, 2016, and 2017 returns. As a result, if you have not filed and are due a refund, please file ASAP.

If you have not filed and expect to owe for 2017, please file before April 17 even if you can’t pay your total tax bill because as noted above, the failure to file penalty is more severe than the simple failure to pay penalty.

Planning Ahead

If you find yourself owing year after year please speak with a tax professional regarding changing your withholding or saving money on a quarterly basis. It is always better to plan ahead with taxes than to be caught on April 14th with no game plan. If you have accumulated substantial tax debt, there are options to deal with the debt.

With the new tax laws in place, withholdings have changed. Many individuals will owe less in taxes as a result of the change in laws, but some may owe more. It is very important to review your paychecks regularly. You should review your paycheck whenever there is a change in income to ensure you are not paying too much or too little in. The IRS has a calculator to give you a starting point in figuring out potential tax liability. Planning for the next tax year will help avoid unnecessary tax penalties whenever possible.

Arthur Rosatti, Esq. is a Florida licensed attorney authorized to represent clients with the Internal Revenue Service and the U.S. Tax Court. He has experience negotiating with various taxing agencies on behalf of individuals and companies. His goal with their tax debtand get them into the best plan possible to manage the debt. He also works with business owners to address Estimate Tax Payments and helps people get on track with their payments.