In: Accounting
Which of the following payment options is the least costly choice available to a taxpayer who cannot pay the amount owed on their tax return by April 17, 2018, but who expects to pay it by August 1,2018?
As per IRS, for a taxpayer who cant pay their taxes on time, there is a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.
However, if you dont file your tax return on time, penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.
So, the failure to file penalty is more than failure to pay penalty.
If you are not able to file your federal individual income tax return by the due date, you may be able to get an automatic 6-month extension of time to file. To do so, you must file Tax Form 4868 by the original due date for filing your tax return (generally April 15, april 17 in this case).
So, by doing so, the taxpayer will not have any penalty on failure to file however, he will be charged with 0.5% of penalty per month or part of month for not paying the taxes on time.