Ryan Vaughn explains what happens when you miss tax deadlines. You face a 0.5% monthly late payment penalty and a 5% monthly late filing penalty, both capped at 25%. Extensions only delay filing, not payment, and the IRS can pursue people who never file, even threatening jail time.
You missed the deadline. What the heck happens? I'm going to give you some of the specific information for income taxes, but know that there are penalties for 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. 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. So There is 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. Now, again, taxes are due on the filing deadline, which usually is April 15th. 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 as of April. If you owe taxes, the IRS is going to charge you 0.5% 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 filed in September and owed, you maxed out your penalty at 25%. Don't mess around with that one. Extensions are easy to file and we help a lot of clients do that. We file hundreds of extensions. 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'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 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. The IRS will work with you if you're working with them in that situation. You will have to file eventually, so might as well do it timely. If you do owe and you missed the deadline, there are possible scenarios where you can request them to forgive the penalty, basically. They're called abatements. 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 there's a variety of different ways we've helped clients get out of penalties over the years. 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 why you wouldn't pay on time. So that's what happens if you miss a deadline, and hopefully that helps. Remember, profit is a choice. Have the courage and wisdom to choose it.
