Tax season for 2018 tax returns finished up almost two months ago, and the vast majority of Americans either got their taxes filed on time back in April or asked for an automatic six-month extension to give them until October to file. However, a significant number of people simply don't bother filing tax returns. Unless you qualify for an exemption from filing, simply laying low and hoping the IRS doesn't catch you is a recipe for disaster.
The IRS took the opportunity to warn late filers that they're about to see what could be a sizable increase in the penalties that they'll pay for not having filed their returns. With the 60-day past-due mark coming on June 14, waiting until June 15 or later to file could result in taxpayers taking a much larger hit when they do get around to filing.
Why not filing is such a big mistake
The IRS has some hefty penalties for those who choose not to file their tax returns. For every month or part of a month that you miss the deadline, you'll have to add 5% of the tax that you owe on your return as an extra penalty. So for instance, if your tax bill was $5,000 and you had $4,500 withheld from your paychecks, then the net tax due on your return would be $500, and the penalty for being late would be $25 per month.
Under these provisions, there's a maximum penalty that generally applies. After you reach your fifth month of being late, the total penalty tops out at 25%. So again, in the example above, the penalty calculating using the 5% per month method would be a total of $125.
The 60-day penalty rule
However, there's another late-filing penalty that can snare taxpayers and cause dramatic increases in the penalties due. If you go more than 60 days past the deadline for getting your return in on time, then you'll face a different set of penalties. There, the IRS will charge you a penalty of at least $210, unless 100% of your tax due is a lesser amount, in which case the amount of taxes owed will be the penalty, effectively doubling your taxes.
To see how draconian this provision can be, apply it to the example described above. Rather than owing penalties for three months at $25 per month or $75, the 60-day rule would force you to pay the full $210, since it's smaller than the $500 total tax owed.
How to stop penalties from accruing
If you're already late in getting your return filed, then there's no easy way to get out of the penalty entirely. However, by filing before the 60-day period ends, you can at least limit your penalty to 10% of your outstanding tax due. In some cases, that'll be a lot better than the $210 or 100% of tax alternative.
Going forward, though, the best course of action is either to file on time or request an extension. Those who properly requested an extension before the initial April 15 deadline will have until mid-October to get their returns filed without any penalty.
There are also some situations in which you won't have to pay penalties. For example, a national declaration of a natural disaster often comes with tax relief, giving taxpayers extra time to get their tax returns in. Also, note that because the penalty is calculated as a percentage of taxes due, you won't owe any penalty for filing late if the IRS owes you a refund. Of course, you're only doing yourself harm in that case, since you won't get that refund until you file.
Get it done
Not filing your taxes isn't a smart way to try to get out of paying the IRS, because the agency has information it'll use to catch you. By getting your return done in the next couple of days, you'll at least be able to avoid the full brunt of the penalties for not filing.