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The Price You Pay If You Don't File Today!

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Taxes: Of life's two certainties, the only one for which you can get an automatic extension.
~Author Unknown

woman filing her taxes

Danielle Hoston: Nobody likes to do their taxes. Well ... I guess tax accountants and those of us expecting refunds actually enjoy doing taxes but the rest of us look forward to our taxes just about as much as our dental appointments. Keep this information in mind before letting today's deadline pass you by:

  1. You will avoid the "failure to file" penalty if you at least file a "Request for Extension" on your tax return. Take 5 minutes and fill out Form 4868 online.
  2. Filing an extension for your tax return is not an extension of your payment deadline. While you will not be penalized for failing to file, you will accrue interest on the amount of tax owed. The current interest rate for unpaid federal income taxes is 5% per month of the net tax due. These interest rates adjust on a quarterly basis.
  3. If you cannot afford to pay your full tax liability, you have options. You can make a partial payment to avoid unnecessary interest or you can attach Form 9465 to your tax return and request an installment payment program.

Did you know?
  • You can check the status of your tax refund online. You can also call the IRS TeleTax System at 800-829-4477or the IRS Refund Hotline at 800-829-1954 for refund status.

  • There are approximately $1.3 Billion in UNCLAIMED REFUNDS from 2005. Unfortunately, there is a 3-year statute of limitations for collecting these refunds. If your 2005 tax return is not filed by today, April 15th, 2009, your refund will be forfeited.

  • Losses on investments like Ponzi schemes are treated differently due to the criminal element and the low probability of recovery. These losses are not subject to standard limitations on losses and can be used to offset taxes over numerous years.


Don't let the price of procrastination compound your tax liability more than necessary. The worst thing you can do is NOT COMMUNICATE with the IRS. Inevitably, a relatively small tax liability can become a huge nightmare when penalties, compounding interest, auditers, liens, and forced sales become involved. For more information, I strongly recommend seeking the advice of a tax professional or visiting IRS.gov.



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46 comments so far | Post a comment now
Brandon Carlton April 15, 2009, 4:30 PM

I didnt know you can file an extension on your taxes.I have been hearing a lot of my friends saying that they all owe the state money.I do too! I wonder why that is? Anyway thanks for the info.

R R April 15, 2009, 7:30 PM

If your extension is not approved, are you still exempt from paying the “failure to file” penalty. If not, how much is the Failure To File penalty?

Danielle Hoston April 15, 2009, 8:06 PM

RR,

If you file the extension by today, it is automatically granted. The only requirement is that it’s filed on time.

Here’s a more in-depth explanation of the penalties from About.com…

Failure to File Penalty
The failure-to-file penalty is calculated based on the time from the deadline of your tax return (including extensions) to the date you actually filed your tax return. The penalty is 5% for each month the tax return is late, up to a total maximum penalty of 25%. The percentage is of the tax due as shown on the tax return. If your tax return is more than five months late, simply multiply your balance due by 25% to calculate your failure to file penalty.

Failure to Pay Penalty
The failure-to-pay penalty is calculated based on the amount of tax you owe. The penalty is 0.5% for each month the tax is not paid in full. There is no maximum limit to the failure-to-pay penalty. The penalty is calculated from the original payment deadline (the original April 15th filing deadline) until the balance due is paid in full.

Interest
Interest is calculated based on how much tax you owe. Interest rates change every three months. Currently, the IRS interest rate for underpayment of tax is 5% per year. The interest is calculated for each day your balance due is not paid in full.

IRS interest rates are variable and are set quarterly. For historical IRS interest rates, see this chart at TaxAlmanac.org.

You bypass the “Failure to File” (which is the most significant) penalty by filing your extension. You will still accrue interest and may be liable for the failure to pay penalty (which is relatively small) if you don’t submit payment of your liability with your extension.

Hope this helps… :-)
-Danielle

Selene April 16, 2009, 8:22 PM

Great Info thank you :)

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