It seems hard to believe that April is here which means that the tax return filing deadline is fast approaching. This year the last date to file your income tax return is April 15, 2019. It is important that you file your return on time since failure to do so will trigger a late filing penalty.
The penalty for late filing a tax return is 5% of the amount of tax shown on the return. The penalty is assessed for each month, or part of a month, the return is late. Hence, even if the return is only a few days late, a full month’s penalty will be assessed. The penalty will be imposed for a maximum of 5 months (25%). In the event the return is filed more than 60 days late, the IRS will impose a minimum failure to file penalty of the lesser of 100% of the tax shown to be due on the return or $210. If the IRS determines that the failure to file the return was fraudulent, the failure to file penalty is increased to 15% per month up to a maximum of 75%.
The failure to file penalty can be avoided by either timely filing the tax return or filing a request for an extension of time to file the tax return no later than April 15, 2019. The IRS will automatically grant you an extension of time to file your income tax return until October 15, 2019. An extension for filing the tax return is obtained by filing IRS Form 4868.
It is important to understand that the extension of time to file a tax return is not an extension of time to pay any tax which may be due. If you do not pay the taxes by April 15, 2019, you will incur a failure to pay penalty. This penalty is .005% (1/2 of 1%) for each month, or part of a month, the tax is not paid. Like the failure to file penalty, a full month’s penalty is charged even if the payment is made within the month. The maximum amount of the failure to pay penalty is 25%. In the event both the failure to file and the failure to pay penalties apply in a particular month, the failure to file penalty will be reduced by the failure to pay penalty for that month.
The failure to pay penalty can be avoided if you make sufficient estimated or withholding tax payments during the year and fully pay any remaining tax due at the time the return is filed. For estimated/withholding tax payment requirements see my previous newsletter:
Note that on March 22, the IRS amended the threshold for waiver of the estimated penalty. As a result of the amendment, the penalty will be waived if estimated payments totaling 80% of the tax due were made during 2018.
Penalties are not the only charges the IRS will impose if your return is not timely filed or taxes not timely paid. The IRS will assess interest on taxes, penalties and interest due. The interest accumulates daily and does not stop accruing until the balance is paid in full. Interest on the failure to file penalty begins to accrue on the due date of the return (April 15 or October 15 if extension is timely filed). Interest on the failure to pay penalty begins to accrue on the notice date of the penalty amount. The interest rate charged by the IRS is determined quarterly, however, any changes to the rate are prospective only. The interest rate for the second quarter of 2019 is 6%.
The IRS’s penalties and interest accrue quickly. In our voluntary tax reporting system penalties serve as an incentive to file and pay taxes on a timely basis. Now is the time to make sure your return, or an extension filing request, are timely filed and that your tax payments throughout 2018 were sufficient.