When it comes to taxes, timing is everything. Whether you’re a small business owner, self-employed, or an individual taxpayer, missing the tax filing deadline can lead to unwanted financial consequences. At CPA Nerds, we regularly get asked: “What happens if I file my taxes late?” In this article, we break down the potential penalties, interest charges, and what you can do if you’re behind on filing.
Late Filing vs. Late Payment: Know the Difference
Before diving into penalties, it’s important to distinguish between filing your taxes late and paying your taxes late. These are two separate issues, and they come with different penalties.
- Late Filing: Happens when you submit your tax return after the deadline (usually April 15) without filing for an extension.
- Late Payment: Happens when you file your return but fail to pay the full amount owed by the deadline.
The IRS can charge penalties for both, and yes, they can stack.
What Is the Penalty for Filing Late?
If you fail to file your tax return on time and you owe taxes, the IRS imposes a Failure to File Penalty. This penalty is typically:
- 5% of the unpaid taxes for each month (or part of a month) the return is late, up to a maximum of 25%.
- If your return is more than 60 days late, the minimum penalty is either $485 (for tax returns due in 2024) or 100% of the tax owed, whichever is less.
This penalty accrues quickly and can significantly increase your total liability if not addressed promptly.
Remember: If an extension is filed for you, that removes the failure to file penalty, but it will not remove the failure to pay penalty. In most cases, the failure to file penalty is much more significant than the failure to pay.
What About the Penalty for Paying Late?
If you file on time but don’t pay your full tax bill, the IRS imposes a Failure to Pay Penalty, which is:
- 0.5% of the unpaid taxes per month, up to a total of 25%.
If both the failure to file and failure to pay penalties apply in the same month, the IRS reduces the late filing penalty by the amount of the late payment penalty, so the combined penalty won’t exceed 5% per month.
Additional Costs: Interest Charges
In addition to penalties, the IRS also charges interest on unpaid taxes starting from the original due date until the balance is paid in full. This interest rate is adjusted quarterly and compounds daily, making it even more important to address the issue sooner rather than later.
What If You’re Due a Refund?
Here’s some good news: If you’re owed a refund and file late, you won’t face a penalty. However, you only have three years from the original due date to claim that refund. After that, the money goes to the U.S. Treasury.
Can You Reduce or Eliminate Penalties?
Yes, in certain cases. The IRS may waive or reduce penalties if you can show reasonable cause for filing late, such as:
- Serious illness
- Natural disasters
- Incorrect tax advice from a professional
You may also qualify for First-Time Penalty Abatement (FTA) if you have a clean compliance history.
Don’t Wait—Act Sooner Than Later
If you’re behind on filing your taxes, the worst thing you can do is ignore it. Penalties and interest only grow with time, and the IRS has a long memory. Even if you can’t pay your full tax bill now, filing your return as soon as possible can reduce the total penalties you owe.
At CPA Nerds, we specialize in helping individuals and businesses navigate complex tax situations, including late filings. Whether you’re one month behind or several years, we can help you understand your options, communicate with the IRS, and get you back on solid financial footing.
Contact CPA Nerds today to schedule a consultation and take the first step toward peace of mind.
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