Smart TaxesSmart Taxes

Even if you can't pay, file your return

IRS charges 5% a month for failure to file unless you get an extension.

By Jeff Schnepper Mar 30, 2010 11:18PM

It hurts enough to pay taxes. Let’s not add to the pain with the additional agony of penalties.


Taxes are what you pay the IRS if you follow their rules.


Penalties are non-deductible fines the IRS imposes on you if you don’t follow their rules.


File your return!


You get a major hit if you don’t file your return by the deadline, normally April 15 or Oct. 15 if a timely extension has been filed. The failure to file penalty is 5% of the unpaid taxes for each month or part of the month that the return is late. The penalty is capped at 25% of your unpaid tax.


But, if you file more than 60 days after your due date (with extensions), the minimum penalty is the smaller of $135 or 100% of the unpaid tax.


Even if you can’t pay, file your return!


Avoid the failure to file penalty because you’re going to be hit with another penalty for not coming up with the tax due. The failure to pay penalty is one half of one percent of your

unpaid taxes for each month or part of a month your taxes are unpaid, capped at 25% of your unpaid tax.

If you file for an extension by April 15, pay at least 90% of the tax due, and pay the balance by Oct. 15, you avoid this penalty.


If you’re subject to both penalties for the same month, the failure to file penalty is reduced by the failure to pay penalty. But, you’re still paying the IRS 5% a month, or the equivalent of 60% per year. If I charged that rate as interest, they’d put me in jail.


If you can show that you failed to file or pay because of reasonable cause and not as a result of willful neglect, the IRS can abate the penalties. But, the burden is on you if you want the penalties removed.


Remember, these penalties are in addition to any interest due on the taxes owed. The current interest rate is 4% and it’s subject to change quarterly.


So, file your taxes. And, even if you have to borrow, pay your taxes. Uncle Sam really isn’t a friendly creditor.




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