You missed the deadline. What the heck happens?
I'm going to give you some specific information for income taxes, but know that there are penalties for missing payroll taxes too—both for not filing and not paying on time—and those are way more severe than what I'm going to talk about with income taxes. You don't want to screw up on payroll taxes. It's a very black-and-white situation, and it's hard to get out of those.
There are two separate penalties: a late payment penalty and a late filing penalty.
The late payment penalty is that the IRS charges you half a percent per month on the unpaid amount, and that will cap at 25%. So you basically have 50 months before you cap out at the 25% maximum penalty on the amount you owe.
Now, taxes are due on the filing deadline, which is usually April 15th. Even if you file an extension, that's only an extension to paper-file the actual return—not an extension to pay. Payment is still due in April if you owe taxes. The IRS will charge you half a percent per month until you pay it.
Now, the bigger penalty—and the reason why it's really important to file an extension even if you don't make a payment—is the late filing penalty. That’s 5% per month, up to a maximum of 25%.
This means that if you filed in September and owed taxes, you would max out your penalty at 25%. Don't mess around with that one. Extensions are easy to file, and we help a lot of clients do that. We've filed hundreds of extensions.
If you are owed a refund, the good news is that there's no late filing penalty or late payment penalty because penalties are based on how much you owe. If they owe you money, they're not going to penalize you. But they still owe you money—so file and get your money back!
That also doesn't mean you can just ignore filing. We've had some clients who thought, "Well, they owe me money, I'll get around to it eventually." Well, the IRS will come knocking at some point if you don't file. I remember early in my career, I had a client who came to me because an IRS agent showed up at his doorstep and said, "You owe eight years of tax filings, and if you don't get these filed soon, we're going to send you to jail."
(Which they can do. Research Wesley Snipes—probably one of the most infamous cases of trying not to file taxes.)
The IRS will work with you if you're working with them in that situation. But you will have to file eventually, so you might as well do it timely.
If you owe and you missed the deadline, there are possible scenarios where you can request the IRS to forgive the penalty. These are called abatements.
I won’t go into too much detail because, honestly, if a taxpayer tries to do this themselves, they could mess it up. Definitely use a professional to help you with abatement letters and requests. There are a variety of different ways we've helped clients get out of penalties over the years. Just know that you can sometimes successfully request and receive forgiveness of interest and penalties. It’s possible—but don’t bank on that as a reason why you wouldn’t pay on time.
That's what happens if you miss a deadline. Hopefully, that helps.
Remember: Profit is a choice. Have the courage and wisdom to choose it.
