US Income tax return 1040 close up filing status and exemptions. concept: What happens if you file taxes late?
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What happens if you file taxes late?

Lack of time, problems completing the paperwork or an emergency can prevent you from filing your business taxes on time. No matter what the reason is, filing your taxes late can mean costly fees and other unpleasant consequences. 

In this article, we’ll review the taxes that you are required to declare according to the type of your business, and we will talk in-depth about what can happen if you pay or declare your taxes late.

You will also learn how to save time to better prepare your return, and what you can do if you do not have money to pay your taxes.

What taxes do I have to file?

Before answering the question, “what happens if you file taxes late?” There is another question that needs to be answered: Should I file taxes annually or quarterly?

The answer is, it depends. If your business is a corporation, a partnership or a sole proprietorship, you are required to file taxes annually. 

But, if you are a contractor or a sole proprietorship, you have to file and pay quarterly taxes. The reason is that none of them are withheld taxes from their salaries, as they are not employees.

In other words, the structure of your business determines when and how to file taxes.

Want to know more about quarterly taxes? Learn how to declare your small business quarterly taxes.

Speaking of deadlines, the Internal Revenue Service has set deadlines for each company to declare and pay their taxes depending on the type of business it is. Also, the requirements are not the same for each business, especially the forms that need to be completed.

Now, if you need help to file your taxes, you have several alternatives at hand: you can go to an office specialized in preparing taxes, use software tax, or hire a public accountant.

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What happens if you file taxes late?

When a person does not file their taxes on time, the IRS examines the case and encourages the person or business to complete their tributary obligations. At the same time, depending on the situation, it assesses whether criminal actions proceed, if it is feasible to negotiate installment payment plans, or reduce tax obligations if they are people in need.

What happens when you declare less income when filing taxes to increase your return?

But there is no reason to be alarmed! 

The IRS only resorts to a criminal process after finding criminal conduct during an audit, such as fraud or evasion.

What happens if you file taxes late? Penalties

Next, we will tell you what happens if you file taxes late. But first, you have to make a clarification. The penalties for those who do not declare their taxes on time are not the same as those who pay them late.

Although it seems contradictory, it is more serious not to declare on time than not to pay on time. You’ll see why. But let’s start by describing what the penalties are for those who pay their taxes late.

Penalties for paying late

Not paying taxes can have serious consequences for your business. The penalties depend on how late you are, but interest starts accumulating after the due date.

The IRS will fine you for paying late. The fine is equivalent to 0.5% for each month that passes after the deadline but can be up to 25% of the amount owed.

Suppose you owe $2,000 in taxes, that you pay ten days later. The fine would be $10, plus interest. Even if you paid only one day late, the IRS would still charge you the penalty equivalent to a month.  

The amount of debt also influences the penalties and fees. If your debt amounts to $10,000 or more, the federal government could impose a lien on your property.

It is also possible that the IRS will withhold your salary or order the bank to empty your bank account to pay the taxes you owe.

In the most serious cases, those who do not pay can go to jail, especially those who do have enough money to pay but refuse to do so.

Government Tax Filing and Compliance - Illustration as EPS 10 File. Concept: What happens if you file taxes late?

Penalties for filing late

What happens if you file taxes late? 

Experts advise that, even if you don’t have the money to pay your taxes, you should file your return. The reason is that the fines for not filing taxes are much higher. 

The IRS will charge you 5% of the taxes you owe for each month you fail to file your return. This penalty could reach up to 25%. 

For example, if you owe $5,000 in taxes and it takes you 6 months to file them, you would have to pay an extra $1,500 in fines. 

As if that were not enough, if you declare 60 days after the original due date, you must pay a fine of $205 or 100% of the taxes you owe, depending on which amount is smaller.

If you refuse to comply with your tax obligations, the IRS has other measures to recover what you owe in taxes: 

  • Submit a lien or claim your property. 
  • File charges for tax evasion.
  • Seize your property.
  • Make you lose your refund.

Luckily, the penalties only apply if you owe the IRS money. If you are entitled to a refund they have no effect. But if you do not file your taxes for three years, the agency is not obliged to give you a refund.

However, there is another way you can get rid of these penalties, even if you file late.

Get a tax extension

If you need more time to prepare your taxes, request a tax extension. 

An extension will give you extra time, six months to be more precise, to meet your tax obligations. You will be able to prepare and gather all the necessary paperwork to file your taxes. 

How to request an extension?

All individuals and sole proprietorships must submit Form 4868 to obtain additional time. Send it to the IRS by traditional mail, through the agency’s online return system, through specialized software or a tax preparer.

Find out the best way to prepare your return: tax software or a tax preparer.

Remember, you must send the estimated tax payment, or at least 90% of it, along with the form. However, if you are entitled to a refund you do not have to attach any payment to the application. The IRS will withhold any refund until you file your taxes.

 Form 7004 is the document that societies, Limited Liability Companies formed by multiple members, and type S corporations must complete to request an extension. 

As these companies do not pay taxes on their income, but on those of their shareholders, it is not necessary to send any estimated payment along with the application. In this case, these payments must be attached to the personal extensions of the partners.

Type C corporations also need to fill out Form 7004 to request an extension, but like individuals and sole proprietorships, they must pay their taxes before the deadline, whether they request an extension or not.

Tax day concept. The USA tax due date marked on the calendar. concept: What happens if you file taxes late?

What happens if I can’t pay my taxes?

We already answered what happens if you file taxes late. But if what worries you is not being able to pay them, there are several options for you:

1. Use a credit card

It is possible to pay the IRS using a business credit card. But keep in mind that the card issuer may charge additional fees for using it.

2. Apply for a loan

An online lender or a traditional bank can get you out of trouble. But be careful, check the terms, the fees and the interest you must pay. 

3. Establish a payment agreement

By arranging with the IRS you can pay your debt in installments. With this alternative, interest rates fall to 0.25% for each month that the agreement is in effect. The terms can be up to 60 months, paying from $25 per month.  

File your taxes on time

Now you know what happens if you file taxes late. It is not the end of the world. Although the IRS can fine you and impose other penalties, it is possible to reduce their impact if you request an extension, or if the IRS owes you a refund.

If you request the extension, you have to submit the appropriate form. If you do not have to pay your taxes, you can establish a payment agreement with the IRS, use a credit card or request a loan to cover your tax obligations.

Continue reading:

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