You probably have a lot of deadlines in your life, but some of them are more important than others. You tell your daughter to finish her homework by 8 p.m. — but you’re willing to stretch it out. 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 16, 2001 for you 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 send in your tax return 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, on any unpaid tax from the due date of your return until the date you pay the corrected amount. The interest amount varies, based on the federal short-term rate. For the period from April 16, 2000 through April 15, 2001, the rate was 9 percent. You may also have to pay a late-payment penalty of .5 percent of the tax owed for each month, or part of a month, that the tax remains unpaid — up to a whopping 25 percent.
These figures apply if you filed by the deadline, but, due to your mistake, you didn’t pay the correct amount on time. Now let’s see what might happen if you didn’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, plus the late-payment penalty. In addition, you will also have to pay a late filing penalty of 5 percent per month, which applies to the total of the tax shown on your return plus any additional tax found to be due. If your return is over 60 days late, the minimum failure-to-file penalty is the smallest of $100.00 or 100 percent of the tax that should have been shown on the return. If you know you are going to be late, you can avoid the late-filing penalty by filing an extension, using Form 4868. However, this won’t erase the late-payment penalty.
All these numbers and percentages can be mind-boggling. But all you really have to remember is that mistakes and tardiness in filing can cost you hundreds, or even thousands of dollars. So, do your best to get your taxes done on time, and done correctly. The extra effort you expend on the front end may save you a lot of money and much grief in the long run.
