Doing your taxes isn’t fun but it’s even more dreadful when you owe the IRS but can’t afford to pay. As a result, some people choose to put off filing until they have the money. Contrary to popular belief, this isn’t a good idea. You’ll only put yourself in more of a hole by racking a second penalty,
one for filing late and the other for paying late. The only time you can miss the deadline without penalty is if you’re due a refund.
Penalty for late filing
Whether you can afford to pay your full balance or not, you still need to file your taxes on-time. The penalty for filing late is a lot higher than what you’ll face for paying late. Normally, the late filing penalty is 5 percent of your unpaid taxes each month up to a maximum of 25 percent. However, if your return is more than 60 days late, the minimum penalty becomes $205 or 100 percent of the unpaid taxes, whichever amount is smaller. If you know for a fact your taxes are going to be late, you must request an extension using Form 4868 before the filing deadline. This will give you an additional six months to file without facing the failure-to-file penalty. However, it will not give you extra time to pay your balance.
Penalty for late payment
The penalty for paying late is 0.5 percent of your unpaid taxes each month. Like its counterpart, the late payment penalty can climb as high as 25 percent of your unpaid taxes. In the event that both late penalties apply, the maximum the IRS will charge you is 5 percent a month. File and pay as much as you can by the deadline to minimize the fees heading your way. ezTaxReturn is the fastest and easiest way to do your taxes. If you request an extension and pay at least 90 percent of your balance by the due date, you may not face a failure-to-pay penalty. However, you’ll still need to pay the remaining balance by the extended deadline.
Your unpaid balance will begin accumulating daily interest the day after the filing deadline. The interest rate is set every 3 months and is the federal short-term rate plus 3%. Requesting a tax filing extension will not save you from paying interest. Instead, the charges will continue to grow until the balance is paid in full.