Did you know that many penalties accrue when you fail to file taxes? Imagine that you are filing your taxes, and during the course of filing these taxes you discover that you will actually owe the Internal Revenue Service some money. No refund for you — instead, you have yourself a $1,000 bill that you have to pay the IRS. Now of course you should go an pay this bill, on time and without hesitation. But there are some people who decide to procrastinate on this step, or even ignore the issue entirely.
If you request an extension to file your tax return, make sure that you pay at least 90% of the total amount that is actually due to the IRS when you file at the later date. If you pay more than the 90% required, there is no penalty. What steps will the IRS take to collect back taxes and associated penalties and interest? Their power is substantial, and they have the ability to come and take money from your paycheck, your business and personal accounts, even your personal assets.
How many penalties accrue when you fail to file taxes? First of all, there is a penalty for failing to file your taxes. This penalty hits the non-filer every month for five months until the tax that is owed is paid, and it is a 5 percent penalty (capping at 25 percent when the five months are up). But there is also interest on this penalty, and there is another penalty that takes effect as well: the failure-to-pay penalty.
The failure-to-pay penalty applies at a much lower rate than the failure-to-file penalty. The failure-to-pay penalty accrues at 0.5 percent per month, capping at 50 months (and again capping at 25 percent). However, the two penalties can’t “stack” on top of one another. In other words, you can’t be penalized more than 5 percent per month for these penalties. If they did “stack” then you would be penalized 5.5 percent.
Ultimately, you can see how many penalties accrue when you fail to file taxes and how straining these penalties can be on your finances. You could end up owing far more than what the initial tax filing tells you if you fail to file and/or fail to pay the IRS. The experienced tax attorneys at Allen Barron will work with you to reduce the penalties and interest you owe the IRS, but time is always of the essence. We invite you to learn more about the integrated tax, legal, accounting and business consulting services of Allen Barron and contact us or call today to schedule a free consultation at 866-631-3470.
