Some people fail to timely file an income tax return because they can’t pay the balance due. By doing this, they are making the situation worse. Tax filers can cut the cost of a tax balance by filing their return on time.
Individuals don’t have to include a payment when filing a tax return. The main reason for filing by the due date is to avoid a penalty for filing late. Although there is a penalty for paying late, you can avoid a late fee by filing by the due date.
The failure-to-file penalty is 5 percent of the unpaid balance for every month, or part of a month, that the return is late. The IRS assesses the penalty for up to five months, resulting in a 25% increase in the tax balance. By avoiding the failure-to-file penalty, the only extra cost is interest and the smaller penalty for paying late.
The failure-to-pay penalty is 1/2 of 1% of the unpaid balance for every month, or part of a month, that the balance remains unpaid. The IRS will assess the failure-to-pay penalty for as long as the balance remains unpaid. For months the failure-to-file penalty and the failure-to-pay penalty both apply, the combined penalty amount gets reduced to 5%.
If a tax balance remains outstanding after a tax return gets filed, we can apply for an IRS payment arrangement. The IRS provides options for both businesses and individuals to pay back taxes on an installment basis. Before applying for an installment agreement, we ensure that all required tax returns get filed.
Contact tax attorney Darrin Mish for more information about resolving tax issues.