Depending on how much income you earn, you are likely required to file a federal personal income tax return, otherwise known as Form 1040, Form 1040A, or Form 1040EZ. If you live in Roseville, Sacramento, or other areas of California, you may also be required to file a state income tax return with the Franchise Tax Board (FTB), which, similar to the Internal Revenue Service (IRS), administers California’s tax laws. If you were required to file a tax return, but you missed the 2018 tax deadline (which was Tuesday, April 17), you are at risk of incurring costly civil penalties. However, with the benefit of professional tax planning services in Roseville, you may be able to reduce IRS late tax penalties and/or negotiate an installment agreement that will allow you to make more manageable payments. Continue reading to learn more about what could happen if you filed taxes late in 2018.
Can You File a Tax Extension After April 15?
Normally, “Tax Day” (the deadline to file a tax return) falls on April 15. This year’s tax deadline was unusual due to the timing of Emancipation Day, which pushed Tax Day 2018 to April 17.
Regardless of whether Tax Day falls on the fifteenth, the seventeenth, or any other date in April, taxpayers can request a time extension by filing Form 4868, which is the IRS Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. However, there’s a catch: the taxpayer must file Form 4868 before April 17 (or, in most years, April 15).
There is only one exception to this rule: the taxpayer may file Form 4868 after Tax Day only if he or she was outside of the United States on the date that taxes were originally due. This generally applies to:
- On-duty military servicemembers
- People who live and work in a foreign country
Otherwise, the taxpayer must request an extension before the standard filing date passes.
Consequences of Filing Taxes Late
Unfortunately, there can be costly consequences for failing to file a timely income tax return. The Internal Revenue Code (IRC), which encompasses federal tax laws, creates a range of civil penalties for late tax filing. These penalties may include failure-to-pay penalties as well as separate failure-to-file penalties. These penalties, which are established by different sections of IRC § 6651 (failure to file tax return or to pay tax), are explained in greater detail below.
- Failure-to-File Penalty – The failure-to-file penalty is established by IRC § 6651(a)(1). Unless the taxpayer committed fraud – a scenario our Roseville individual tax accountants will discuss in just a few moments – this penalty is generally up to 5% of the amount that is due. This penalty is applied toward each month the taxpayer fails to file his or her return, even if it is only a few days out of a full month. The penalty will generally be capped once it reaches 25% in the aggregate, but again, these figures can rise dramatically if the taxpayer attempts to defraud the IRS.
- Failure-to-Pay Penalty – The failure-to-pay penalty is established by IRC § 6651(a)(2). The penalty for failing to pay taxes is typically 0.5% of the unpaid taxes due. Like the failure-to-file penalty, this penalty is applied toward each full or partial month the taxpayer does not pay.
Keep in mind the aforementioned are both civil penalties. If the IRS believes that the taxpayer intentionally broke the law and committed tax evasion, the taxpayer could be criminally investigated – and even sentenced to prison time.
However, criminal penalties do not negate civil penalties. On the contrary, it is common for tax defendants to receive both sets of penalties. In fact, the IRC specifically establishes increased civil penalties for fraudulent, or deliberate, failures to file taxes. Under IRC § 6651(f), “If any failure to file any return is fraudulent,” the civil penalties may increase as follows:
- The 5% penalty for failing to file can increase to 15%.
- Instead of being capped at 25%, the penalty can be capped at 75%.
Though among the most common, the failure-to-pay and failure-to-file penalties are not the only consequences confronting taxpayers who file delinquent tax returns. If you have unfiled federal or California tax returns, consult with a Roseville tax preparation service about minimizing the amount that you owe, or negotiating a manageable IRS installment plan. Ignoring the problem will only cause penalties to continue building, opening up the potential for worse financial outcomes down the line.
California CPAs Handling Tax Preparation and IRS Negotiation
At Cook CPA Group, we have more than 25 years of combined experience aiding individuals and businesses with a wide range of state and federal tax issues. If you are worried about unfiled back taxes, or have questions about how to handle the IRS and become compliant, we invite you to contact our Roseville CPA firm for a free consultation. To arrange your free consultation, contact Cook CPA Group online, or call us at (916) 724-1665.