Avoid These 2 Tax Penalties This Season
Let’s face it; nobody likes doing their taxes. It’s no surprise why so many wait and put off filing their taxes until the last possible moment just to avoid some of the stress. However, this can often cause people to miss the deadlines for payments and leave them vulnerable to paying fines that exceed their actual payments due. Instead, use our tips to stay on top of your finances and avoid these two tax penalties.
1. Failure to file penalty
2. Failure to pay penalty
Even if their names are pretty self-explanatory, let’s break down these two penalties to better understand them.
Failure to File Penalty
If you don’t file your taxes on time, you will be hit with a failure to file penalty. The Failure to File Penalty is calculated based on how late you file your tax return and the amount of unpaid tax as of the original payment due date. According to the IRS, “The Failure to File Penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty won’t exceed 25% of your unpaid taxes.”
Failure to Pay Penalty
Sometimes you can file your taxes, but you fail to pay by the due date. According to the IRS, “The Failure to Pay Penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. The penalty won’t exceed 25% of your unpaid taxes.”
Here are a few ways you can avoid these penalties this tax season if you pay late.
Ask for an Extension
Don’t wait until it’s too late! If you’re going to be late on your payments, you need to ask for an extension. This will grant you more time to file, although the month to file can change based on your circumstances for that year. Whether you’re filing as a business or personal, you may need to ask for an extension for a number of reasons. You will also have to fill out different forms depending on how you’re filing. The best tip we can give is to be proactive when it comes to filing, even if you have to pay late.
Apply for a Payment Plan
Even if you have penalties for filing taxes late, the IRS offers payment plans for businesses and individuals. To get the best payment plan, you don’t want to sustain any penalties. Depending on your filing status, whether you want a long-term or short-term payment plan, and how much you owe, there are different plans to apply for through the IRS.
Use a CPA Firm
Working with a CPA firm year-round can help you avoid facing penalties for late payments. CPAs can help you stay on track with your finances and tax situations. However, you shouldn’t just hire anyone. You need a knowledgeable and experienced firm that understands tax laws and penalties to help you avoid mistakes.
Understanding why you should pay your taxes on time can help motivate you to stay on top of things this tax season. Although there are ways to avoid penalties, it’s better to file and pay on time rather than take the risk. However, if you should fail to file or pay on time, use these three tips to help you out.