The deadline for filing and paying taxes has been extended this year as a result of the COVID-19 coronavirus and resulting business shutdowns. You now have until July 15 to submit your paperwork to the IRS and pay what you owe.
But while you have more time, you still need to make sure you file by the new extended deadline. That's because the penalty for failing to file is much higher than the penalty for just failing to pay your tax bill. In fact, it's gone up a lot this year, so it will be especially important to submit your return on time.
What is the failure-to-file penalty?
The failure-to-file penalty is calculated based on a percentage of the unpaid tax you were supposed to report. Specifically, you'll be charged a penalty equal to 5% of the unpaid tax amount. You're charged for each part of a month you're late. This method of calculating penalties is unchanged and applies any year when you don't file your taxes.
But if you file for your return more than 60 days after the date your return is due, you'll owe the lesser of:
- 100% of the tax due on the return you didn't file, or
- $435 for returns due after Jan. 1, 2020
This minimum $435 penalty is significantly higher than in the past. For returns due between Jan. 1, 2018, and Dec. 31, 2019, for example, the minimum flat-fee amount you could owe was $210. This penalty jumped up a lot due to a provision in the SECURE Act that passed at the end of 2019.
How to avoid a penalty for failure to file
If you don't want a large penalty for failure to file your return on time, be sure to meet the new July 15 deadline.
You should file even if you cannot pay your tax balance, since the penalty for failing to pay is just 0.5% of the unpaid tax balance due. If you file but can't pay your taxes, you can consider a payment plan with the IRS.
You should also watch the IRS website for updates. It is uncertain how long the economy is likely to be affected by the pandemic, so it's possible the deadline to file and pay your taxes will be extended again. Don't count on this, though. Plan to submit your return and pay your tax balance as soon as you can.
Make sure you submit your return on time
As you can see, not filing on time is a costly error. Even if you're concerned about your ability to pay what you owe, you should get your return in on time.
You can always work out a payment plan with the IRS later, but if you don't submit your return by the deadline, the penalty could add a lot to the amount you owe. And the last thing you need if you're having tax trouble is a mistake that makes it even harder to fulfill your obligations.
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