The $1,250 tax mistake you can’t afford to make this month - check before you file

People are being reminded to file and pay taxes before the deadline, or they may have to pay extra penalties and interest. The Internal Revenue Service expects around 164 million tax returns before the April 15 deadline. Anyone who does not file or does not pay taxes on time can face two different penalties — one for late filing and one for late payment.

On top of penalties, the IRS also adds interest, which makes the total amount grow quickly. The biggest and most expensive mistake is not filing your tax return at all by the deadline. The IRS charges a failure-to-file penalty if you don’t submit your return on time. This penalty is 5% of unpaid taxes every month, or part of a month, that your return is late. The failure-to-file penalty is capped at 25% of your unpaid taxes, as cited by The Daily Express.

Late filing cost example

A simple example shows how costly this becomes: if you owe $5,000 and file one month late, you pay $250 penalty. After three months, the penalty becomes $750, and after five months it reaches $1,250, which is the full 25% limit. The IRS says people should still file their tax return even if they cannot pay the full amount immediately. Filing on time helps you avoid the bigger failure-to-file penalty, even if you still owe money.


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A separate failure-to-pay penalty applies when you file but don’t pay your taxes. This penalty is 0.5% of unpaid taxes per month, which is smaller but still adds up. For example, if you owe $5,000, the late payment penalty is $25 for the first month. After one year, that late payment penalty could reach $300, as stated by The Daily Express. The IRS also charges interest on both unpaid taxes and penalties, which keeps growing until everything is paid.

Interest makes it worse

Interest rates change every quarter and are linked to federal benchmarks. Because of penalties plus interest, your tax bill can increase much faster over time. The best way to avoid all penalties is to file and pay taxes by April 15. If you cannot pay the full amount, you should still file on time to reduce the damage.

The IRS allows people to apply for an extension to file taxes until October. But even with an extension, you must still pay the estimated taxes by April 15. To get the extension, taxpayers need to file Form 4868 and pay estimated taxes. The IRS also offers payment plans, letting people pay their tax debt in installments. Short-term payment plans are also available for smaller amounts so people can pay within a few months. Filing late can cost you up to $1,250 extra, and interest makes it even worse — so filing on time is very important, as noted by The Daily Express.

FAQs

Q1. What happens if I file taxes late?

If you file late, the Internal Revenue Service may charge a penalty up to 25% of unpaid taxes, plus interest.

Q2. Can I avoid penalties if I cannot pay taxes fully?

Yes, you should still file on time and pay what you can to avoid the bigger late-filing penalty.