Every year I speak with numerous taxpayers who delay filing their tax return because they know they will owe the IRS money and they cannot afford to pay it.
It’s a very common reaction. Many people think that if they cannot pay their tax bill, it is better to wait until they have the money before filing.
Unfortunately, that decision often makes the situation much worse.
The IRS charges two different penalties when taxes are owed and not paid on time. One of these penalties is significantly larger than the other. Filing your return on time—even if you cannot pay—can dramatically reduce the penalties that accumulate.
In the video below, I explain why filing your tax return on time is one of the most important steps you can take to keep your tax balance from growing unnecessarily.
Watch the Video: Why You Should File on Time Even If You Can’t Pay
The Two IRS Penalties That Matter
When taxes are owed, the IRS generally charges two separate penalties.
Failure to File Penalty
The failure-to-file penalty is the larger of the two.
It is typically 5% of the unpaid tax per month, up to a maximum of 25% of the tax owed.
This penalty applies when a taxpayer does not file their tax return by the due date (including extensions).
Failure to Pay Penalty
The failure-to-pay penalty is much smaller.
It is typically 0.5% of the unpaid tax per month, also up to 25%.
This penalty applies when the tax is not paid by the due date.
Why Filing on Time Saves You Money
If you do not file your return, the IRS can charge both penalties at the same time.
But if you file your return on time, the failure-to-file penalty is eliminated.
That means you avoid the larger 5% monthly penalty and are only subject to the smaller failure-to-pay penalty.
In many cases, filing on time can reduce penalties by thousands of dollars.
Filing Opens the Door to IRS Resolution Options
Another important reason to file on time is that the IRS generally requires taxpayers to be compliant with their tax filings before they can qualify for resolution programs such as:
- Installment agreements
- Currently Not Collectible status
- Offer in Compromise
In other words, filing your tax return is the first step toward resolving the tax debt.
Don’t Let Fear Delay Filing
Many taxpayers avoid filing because they are worried about the amount they will owe. But delaying the filing often causes the balance to grow faster because of penalties and interest.
Filing your return does not mean you must pay the entire balance immediately. It simply allows you to take control of the situation and explore your available options.
Need Help With IRS Tax Debt?
If you owe the IRS and are unsure what your next step should be, it can help to review your situation with a tax professional who works with IRS collections and tax resolution cases.
If you would like help understanding your options, you can schedule a consultation to review your situation and determine the best path forward, either go to my booking calendar at https://jablonskytaxrelief.com/contact/ or give me a call at (972) 821-1991 to get you on my calendar and begin the steps to solve your IRS problem and get your life back on track.
Final Thoughts
If you take away only one message, it should be this:
File your tax return on time—even if you cannot afford to pay the balance due.
Doing so can significantly reduce penalties and help you start working toward a resolution with the IRS.
