Every tax season and throughout the year, we are asked that question over and over again. The IRS isn’t happy with anyone that misses the deadline for filing their tax return (or extension). Here’s what you need to know:
If you’re entitled to a refund then there will be no interest and penalties. The IRS only applies interest and penalties to those that owe money. However, if you wait over three years then you will lose any chance of a refund.
If you owe the IRS then you will be charged a penalty of 5% of the balance due per month it’s late.
If you don’t pay on time then you will also be charged a failure to pay penalty of 0.5% a month on top of the penalty stated above.
Filing an extension may buy you a little more time, but it will not eliminate the failure to pay penalty. Therefore, when you file an extension it’s important to pay an estimate.
If you can prove an explanation that is reasonable as to why your tax return was late or payment was late then the IRS may remove the penalties due.