Big Mistake: Filing your tax return late

Industry Observer with Green Krist CPA PLLC 34463

Three bad things happen when you file your tax return late.

 What’s Late?

 You can extend your tax return and file during the period of extension; that’s not a late-filed return.

 The late-filed return is filed after the last extension expired. That’s what causes the three bad things to happen.

 Bad Thing 1

 The IRS notices that you filed late or not at all.

 Of course, the “I didn’t file at all” people receive the IRS’s “come on down and bring your tax records” letter. In general, the meeting with the IRS about non-filed tax returns does not go well.

 For the late filers, the big problem is exposure to an IRS audit. Say you’re in the group that the IRS audits about 3 percent of the time, but you file your tax return late. Your chances of an IRS audit increase significantly, perhaps to 50 percent or higher.

 Simply stated, bad thing 1 is this: file late and increase your odds of saying: “Hello, IRS examiner.”

 Bad Thing 2

 When you file late, you trigger the big 5 percent a month, not to exceed 25 percent of the tax-due penalty.

 Here, the bad news is 5 percent a month. The good news (if you want to call it that) is this penalty maxes out at 25 percent.

 Bad Thing 3

 Of course, if you owe the “failure to file” penalty, you likely also owe the penalty for “failure to pay.” The failure-to-pay penalty equals 0.5 percent a month, not to exceed 25 percent of the tax due.

 The penalty for failure to pay offsets the penalty for failure to file such that the 5 percent is the maximum penalty during the first five months when both penalties apply.

 But once those five months are over, the penalty for failure to pay continues to apply. Thus, you can owe 47.5 percent of the tax due by not filing and not paying (25 percent plus 0.5 percent for the additional 45 months it takes to get to the maximum failure-to-pay penalty of 25 percent).

Green Krist, CPA  specializes in assisting taxpayers with IRS and North Carolina Department of Revenue issues in the greater Raleigh, North Carolina area.

Comments (4)

Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello and thanks for the information that you share with us.  I am good when it come to Uncle Sam and pay on time.


Aug 08, 2021 07:05 AM
Sham Reddy CRS
H E R Realty, Dayton, OH - Dayton, OH

I agree with you Kelly. But many of self employed subscribe a different philosophy of filing late in October including myself.

Aug 08, 2021 09:30 AM
Debe Maxwell, CRS | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
The right Charlotte REALTOR!

I have friends that file late every year out of habit. I, on the other hand, always file on time. I work hard for my money & the last thing I'm going to do is give Uncle Sam more money than I have to.

Aug 08, 2021 02:21 PM
Bob Crane
Woodland Management Service / Woodland Real Estate, EXP - Stevens Point, WI
Forestland Experts! 715-204-9671

Hi Kelly,  Thank you for sharing this information on filing late tax returns.  Typically, we file on time - the last week or so, but we usually get them done before the first deadline. 

Aug 08, 2021 04:15 PM