CPA Tip: What Happens When You File Your Tax Return Late

Rick E Norris_An_Accountancy_Corporation_ CPA Tip:_What_Happens_When_You_File_Your_Tax_Return_Late

As a CPA firm, we sometimes get new clients that have not filed a tax return in two or three years. Of course they seek the help of a CPA when the federal and State governments start sending threatening notices, or forcibly taking their money through a garnishment or a levy.  Obviously this puts the CPA in the position to “plug the dam” before we can start reconstructing it.

The most important CPA tip is to NOT ignore notices.  The notices only get meaner and then make it harder and more expensive to hire a CPA to fix the problem.

A CPA can speak on your behalf to clean up the mess with a Power of Attorney, but you have to sign it and designate the CPA as your representative for the tax years at issue.

The IRS sent out an issue explaining what happens when you file late:

April 15 is usually the deadline for most people to file their federal tax return and pay any tax they owe. If you are due a refund there is no penalty if you file a late tax return. If you owe tax, and you failed to file and pay on time, you will most likely owe interest and penalties on the tax you pay late. To keep interest and penalties to a minimum, you should file your tax return and pay the tax as soon as possible. Here are some facts that you should know.

1. Two penalties may apply. One penalty is for filing late and one is for paying late. They can add up fast. Interest accrues on top of the penalties.

2. Penalty for late filing. If you file your 2015 tax return more than 60 days after the due date or extended due date, the minimum penalty is $205 or, if you owe less than $205, 100 percent of the unpaid tax. Otherwise, the penalty can be as much as five percent of your unpaid taxes each month up to a maximum of 25 percent.  You could have avoided this penalty by contacting a CPA to file a tax filing extension before the due date even is you couldn’t pay the money.

3. Penalty for late payment. The penalty is generally 0.5 percent of your unpaid taxes per month. It can build up to as much as 25 percent of your unpaid taxes. As a CPA I see this type of penalty adding up quickly.

4. Combined penalty per month. If both the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5 percent per month.

5. File even if you can’t pay. Filing on time and paying as much as you can will keep your interest and penalties to a minimum. If you can’t pay in full, getting a loan or paying by debit or credit card may be less expensive than owing the IRS. If you do owe the IRS, the sooner you pay your bill the less you will owe.  As stated above, if your CPA filed a six month extension, you still have to file within that time frame.

6. Payment Options. Explore your payment options on our website at IRS.gov/payments. For individuals, IRS Direct Pay is a fast and free way to pay directly from your checking or savings account. The IRS will work with you to help you resolve your tax debt. Most people can set up a payment plan using the Online Payment Agreement tool on IRS.gov.

7. Late payment penalty may not apply. If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.

In addition to penalties, there is interest computed.  Your CPA can tell you the interest rate but the amount of interest accrues up to the time the governmental agency receives the payment.  So your CPA may be able to give you a ballpark estimate.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

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IRS CIRCULAR 230 DISCLAIMER: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, (Firm) would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

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