If you’ve been putting off filing because you’re concerned about what you may owe, you’re actually causing more harm than good! Whether it’s been months or years, filing late can cost you more than the penalty on a late payment to the IRS.
Failure-to-File or Failure-to-Pay?
If you’re reading this, chances are you may have put off filing your 2017 tax return, or worse, you’ve put off the last three years! Most taxpayers may be aware of the penalty for paying late, however, many are unaware of the fact that they will also have a penalty for filing late.
There is a big difference between the two penalties!
- Failure-to-file is 5% of your unpaid taxes for every month your tax return is late, up to a maximum of 25% of the amount you owe.
- The penalty on your failure-to-pay is only 0.5% of the amount you owe for every month your taxes remain unpaid (also up to a maximum of 25%). Interest rates are also added to this penalty and vary amongst taxpayers.
The safest and cheaper option is to avoid the failure-to-file penalty, regardless if you are ready to pay the amount of taxes you owe. You can avoid this penalty by filing now or by requesting an extension. However, if you file an extension and owe, you are still subject to the failure-to-pay penalty.
Not ready to pay what you owe?
There are various options to pay the amount you owe so don’t let the fear of paying keep you from filing. Remember, your goal is to pay less and by reducing the amount of penalties and interest, you will owe less and save!
The IRS has various options for taxpayers who are unable to fully pay the amount they owe. By contacting the IRS, you can set yourself up for any of the following arrangements:
This extension allows you 120 days to make payments on the amount you owe. This option does not require a fee, but you will still accrue interest with your late-payment penalty.
Instead of making a large payment, pay the amount you owe with an installment agreement. This option has a setup fee which varies based on your agreement with the IRS. An agreement with automatic draft has a setup fee of $31; without an automatic draft, it’s $149. Accrued penalties and interest will also remain until the full amount is paid.
Temporary Delay on Collection
The delay on collection doesn’t cancel your debt or penalties and interest, however, it may help you gather the amount needed to pay your unpaid taxes. In order to qualify for this delay, the IRS must determine that you cannot pay any amount of your debt. However, the IRS can also file a Notice of Federal Tax Lien on your personal property and financial assets.
Offer in Compromise
This option is for individuals who may bear a financial hardship due to the amount owed to the IRS. An “offer in compromise” allows you to pay less than your amount due. If you feel that your amount is unpayable or will create a hardship, click here to see if you meet the pre-qualifications for an offer in compromise.
So if you’ve been dreading your filing because you are worried about the penalty for paying late, please re-consider your procrastination. Avoid the failure-to-file penalty and start filing your taxes today!