Well, the corporate extension deadline just passed, and now the deadline for those taxpayers who extended their returns on April 15th is approaching. The last day to file your 2010 individual tax return is October 17, 2011 (this year, the 15th is on Saturday.) So if you haven’t filed your return, you better get it to your tax preparer ASAP. Waiting until right before the deadline forces the tax preparer to finish your return in a rush. This leads to errors, a higher preparation fee, and higher taxes, since you won’t have time to look for additional tax write-offs.
But remember, the extension was only an extension of time to file your return, not an extension of time to pay your 2010 income taxes. If you owe money, you will get penalized as follows:
- Failure to pay tax (late payment penalty). This is a 0.5 percent tax on the unpaid balance for each month or part of a month, with a maximum of 25 percent. The penalty is cut in half for months with an installment agreement in place.
- Interest on the unpaid balance based on the latest IRS published rate.
These penalties are dwarfed by the penalties that you will receive if you fail to file your return on time. These penalties are:
- Failure to file tax return (late filing penalty). This is 5 percent of the unpaid balance for each month or part of a month the return is late, with a maximum of 25 percent. There is no penalty if the return shows a refund. This can add up quickly.
- Fraudulent failure to pay tax late payment penalty. If the IRS determines that the underpayment was fraud-related, they can impose a 15 percent penalty, up to a maximum of 75 percent.
So the moral of the story is to file your return on time even if you can’t pay the tax. The penalty for not paying is much smaller than the penalty for not filing. You can always set up a payment plan.
Finally, be sure to not give the IRS a bad check. There is a 2 percent penalty for that on top of all of the above penalties.
Like any good CPA, I need to add a disclaimer: Unfortunately, it is impossible to offer comprehensive tax info over the Internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.