In this instructional video, tax professional Ryan Vaughn explains the consequences of missing tax filing and payment deadlines for business owners. He distinguishes between payroll tax penalties (which are more severe) and income‑tax penalties, describing the two separate penalties that apply when income taxes are late: a late‑payment penalty of 0.5 % per month (capped at 25 %) and a late‑filing penalty of 5 % per month (also capped at 25 %). He stresses that tax payments are due on the filing deadline (April 15, or April 18 in 2024) even if an extension is filed, and that extensions only extend the time to file, not to pay. Vaughn advises using a payroll company to avoid payroll‑tax mishaps, shares a client anecdote about “float” payroll practices that led to large penalties, and notes that refunds are not subject to penalties but still require filing. He recounts a case where the IRS threatened a client with jail for years of non‑filings, showing that the agency can enforce compliance. Finally, he outlines the possibility of penalty forgiveness (abatements) and recommends hiring a tax professional to handle abatement requests, emphasizing that while forgiveness is possible, it should not be relied upon as a reason to delay payment. The video concludes with a motivational reminder that profit is a choice.
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Okay, you missed the deadline, the filing deadline. What the heck happens? Um, well, I'm going to give you some of the specific information for income taxes, but know that there are penalties, uh, for payroll— missing payroll taxes, for not filing it, for not paying it on time. And those are way more severe than what I'm going to talk about with income taxes, which is again in a in another video why I explained we recommend business owners just use a payroll company to help with their payroll filings. Um, you don't want to screw up on those. It's a very black and white situation and it's hard to get out of those. We have a client that I've been desperately trying for years to get them to move to a payroll company, but they use the float. And the float is this idea of paying— you're giving your check to the employees and then hoping revenue comes in between the time you hand them the check and the time they cash the check. And in those situations, then they can basically wait until the end of the quarter to make the payroll tax filing. When you use a payroll company, when you do direct— you submit payroll, it's a direct deposit to your employees. And then the same day, the payroll company pulls out the payroll tax burden. And because they do it that way, and we've— again, all we can do is encourage. They have ended up owing way more in penalties and messed up payroll stuff and missing payments and filings and screwing up that way. than they would have ever paid in using a payroll company. I mean, it's a significant amount. So anyways, I digress. But let me go back to the what happens if you miss the deadlines for income taxes. So there is a late payment filing penalty. Sorry, I just said both at once. That was dumb. Or a late payment penalty and a late filing penalty. They are 2 separate penalties. The late payment penalty is that the IRS charges you half a percent per month on the unpaid amount, and that will cap at 25%. So you basically have 50 months before you cap out the 25% max penalty on the amount that you owe. Um, now again, Taxes are due on the filing deadline, which usually is April 15th. This year it's April 18th. Even if you file an extension, that's an extension to paper file the actual return. It's not an extension to pay. Payment is due April 18th. So as of April 18th, if you owe taxes, the IRS is going to charge you half a percent per month until you pay it. Now the bigger penalty which is why it's really important to file an extension even if you don't make a payment, is the late filing penalty. That's 5% per month up to a maximum of 25%, which means if you pay in September, for example, you have basically maxed out— or sorry, if you filed in September and owed, you maxed out. your penalty at 25%. Don't mess around with that one. Extensions are easy to file, really easy to file. And, you know, we help a lot of clients do that. We file hundreds of extensions. Now, if you are owed a refund, the good news is, is there's not a late filing penalty or a late payment penalty because the penalty is based on how much you owe. So if they owe you money, they're not going to penalize you, but they owe you money. So file and get your money back. That also doesn't leave you out of the need to file. So we've had some clients who are like, well, okay, great, they owe me money, I'm good, I'll get around to it eventually. Well, the IRS will come knocking at some point if you don't file. I remember early in my career, I had a client who came to me because the IRS agent showed up at his doorstep and said, you owe, you know, 8 years of tax filings, and if you don't get these filed soon, we're going to send you to jail, which they can do. Research Wesley Snipes, probably one of the most infamous cases. of trying to not file taxes. And now his argument was ridiculous. He actually did spend jail time, but, uh, my client didn't. The IRS will work with you if you're working with them in that situation, uh, and in his case, he was using us. And so we, uh, we were able to keep him out of jail, get his taxes filed. So you will have to file eventually, so might as well do it timely. All right, uh, if you do owe and you missed the deadline, there are possible scenarios where you can request— well, you can ask them to forgive the penalty. Basically, they're called abatements. And I won't go into detail with it because honestly, if a taxpayer tries to do this themselves, they potentially are going to mess it up. Definitely use a professional to help you with the abatement letters and requests because you can do— there's a variety of different ways we've helped clients get out of penalties. Over the years. We're just more experienced at it. I mean, a taxpayer, if they, if they're doing this themselves, they file one tax return a year. We do thousands. So we just have a bit more experience at it. But just know that you can sometimes successfully request and receive forgiveness of interest and penalties. It's possible, but don't bank on that as a reason to why you wouldn't pay on time. So that's what happens if you miss a deadline, uh, and hopefully that helps. Remember, profit is a choice. Have the courage and wisdom to choose it.
