We all are aware of the fact that heavy penalties can be issued if we are late in filing taxes. However, it can be complicated.. If you are late in filing taxes, the IRS is authorized to issue penalties that work differently for every individual. There are numerous things taken into consideration while issuing penalties.
When are you penalized?
Most of the people live under the impression that tax penalties are paid at the time of receiving tax refunds. But the fact is that you are penalized within a specific timeframe of 3 years after you lodge a file. Failing to file for it leads to forfeiting of tax refunds. Hence, you are not entitled to pay penalty upon filing for an extension or pay all the additional taxes within a stipulated timeframe. You will only be entitled to pay penalties if you do not clear your taxes timely and refrain from filing tax returns.
How are penalties calculated?
The penalty is calculated as 5% of the total additional taxes that you owe. The percentage can accelerate upto 25% if you fail to file for return. In case you file 60 days subsequent to the deadline, the minimum amount of penalty amounts to $ 135 or a 100% of total unpaid tax. Also note, if you file for returns and then by any chance fail to pay on time, the penalty charged will not be as major as that of filing late. Therefore, it is advisable to file on time and avoid inessential penalties. If you are incapacitated to pay all the additional taxes you owe by 15th April, the stipulated timeline of paying taxes, then you will have to pay 0.5% of the additional taxes as a part of penalty.
Thus, it is imperative to file on time in spite of the fact that you cannot pay your taxes on time. At least you will get an extension or be authorized to pay a small penalty. This case is similar to the exams case when your marks are deducted for submitting late. The penalty depends solely on the total amount you are supposed to pay and time frame when you are paying it.
