Are you worried about penalties for late tax returns? Perhaps your employer neglected to send you an accurate W2 income tax form, or you've had a medical emergency that has severely disrupted your life. For whatever reason, you've let the April 15th income tax deadline come and go, and you're afraid the IRS will soon come calling. There are certain penalties for late returns, but, if you follow the appropriate steps, you can minimize the penalties and keep things in good order with the IRS.
Penalties If You File for an Extension
For those who fail to file their income tax return by the appropriate date, the IRS has a system of penalties for late tax returns in place for those who either mistakenly or purposefully do so. If you know you are going to be late in filing your income tax return, don't ignore the due date. Fill out Form 4868 from the IRS to request an extension.
If the IRS grants you the extension, they will also assess a penalty that you must pay in addition to the tax amount owed. The penalty is 0.5% per month, plus any interest on the unpaid taxes. There is no penalty assessed for tax returns where you will be receiving a tax refund, and if you less than 10% of your liability or less than $1,000, you won't be penalized.
Penalties If You Don't File for an Extension
If you don't file for an extension, the penalty for late tax returns is 5 percent per month, up to a maximum of 25 percent of your taxes. The IRS will also calculate interest on taxes that are unpaid, and while this interest rate fluctuates from year to year, it generally varies between 4 percent and 9 percent.
Why It's Better to File
Even if you cannot pay taxes owed, file a return by the tax deadline to reduce your penalties. If you have a good reason for being late or for not paying taxes owed, let the IRS know via a note attached to your return. Depending on the circumstances, the IRS may reduce or even waive some penalties for late tax returns. This is, however, completely at their discretion. Some common reasons for penalty waivers are natural disasters, severe accident or disability.
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