The real cost of not paying your taxes until October 15!

This time of year we often see taxpayer's looking to extend the time to pay their taxes due and asking, "what are the penalties if I do not pay my taxes due by April 15."   Here I will address how to estimate the cost of not paying timely - the penalties assessed by the IRS.

First off... Remember, the extension to file tax returns as late as October 15, is only an extension of time to file the return.  All taxes are still due on April 15th.  An estimate of taxes due should be made, to the best of your ability, and that amount should paid before April 15th!

Secondly... It is always best to file your taxes on or before April 15, or October 15 - if extended.  If you do not file timely there is a failure-to-file penalty, which is generally more than the failure-to-pay penalty, therefore you should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should  explore other payment options such as getting a loan or making an installment agreement to make payments. The IRS will work with you.  The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.

OK... the cost of late paying... If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date. You can eliminate this penalty if you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.

What about interest?  Yes, there is interest charged in addition to the penalty.  The interest is currently at a rate of 4% annually.

Total cost of extending to October, if a balance is due... Assuming you have a valid extension of time to file, and you did not estimate and pay your taxes properly on April 15, then you will pay interest on the tax due in the amount of 2% for the 6 months of extension.  To that you will add the late paying penalty of 3% for the 6 months.  Therefore, the cost of paying the tax in October will be about 5% of the taxes due.

Of course there are always other circumstances that may vary the above results.  This is a guideline to help those who are having cash flow issues and need to evaluate the cost of not paying until October 15.  NOTE! there are extensive penalties that start after the 6 month extension, which include an additional 5% of the total tax per month, to a maximum of 20%.  Please consult your tax professional of contact our firm, to asses your specific situation.

DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300
ww.sharpcpa.com

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