| You probably have a lot of dead lines in your life, some more important than others. You tell your daughter to finish her homework by 8 p.m., but you’re willing to stretch it. You vow to get the basement cleaned before the weekend is over, but you know you’re kidding yourself. However, when the IRS sets a deadline of April 15 for your to file your taxes, guess what? They mean it.
If you miss this deadline or even if you file on time but make a mistake, you may have to pay for it – and it could get expensive. How expensive? Let’s take a look at two different scenarios.
Suppose you get your tax return in on time but the IRS informs you that you’ve made a mistake, either in your calculations or through a misinterpretation of tax laws.
If you owe the IRS money, you’ll be charged interest, compounded daily, or any unpaid tax from the due date of your return until the date you make your payment. The interest rate varies, based on the federal short-term rate plus 3 percentage points. For the first quarter of 2001, the rate was 9 percent, for the second quarter it was 8 percent, for the third and fourth quarters is was 7 percent. You may also have to pay a late-payment penalty of 0.5 percent of the tax owed for each month, or part of the month, that the tax remains unpaid. This can equal up to a whopping 25 percent! These figures apply if you filed by the deadline but, due to your mistake, didn’t pay the correct amount on time.
Now lets see what could happen if you don’t file on time and you still owe taxes. You won’t be surprised to learn that you’ll have to pay the interest on the unpaid tax, you’ll have to pay the late-payment penalty, and now, you may also have to pay a late-filing penalty of 5 percent a month, which applies to both the tax shown on your return and any additional tax found to be due. If you know you’re going to file late, you can avoid the late-filing penalty by filing an extension using Form 4868. Unfortunately, this extension won’t eliminate the late-payment penalty.
If your return is more than 60 days late, the minimum failure-to-file penalty is the smaller of $100 or 100 percent of the tax required to be shown on the return.
All these numbers and percentages can be mind-boggling, but all you really need to remember is that mistakes and tardiness in filing can cost you dearly. Do your best to get your taxes done on time and done correctly. The extra effort can save you a bundle down the line. |
