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For most folks, filing their annual income tax returns timely is the way to go.  Either file by April 15th or filing by the extension due date of October 15th.  But it doesn't always work out that way.  Every year many taxpayers fail to file timely.

Of course, as with anything else, there are pros and cons:

The problems that arise for late filing::

  • If you owe money, the penalties and interest can really start to mount up since they are computed based on the amount of unpaid taxes.
  • For certain tax returns (for example forms: 990, 1065, 1120S, 5500) penalties assessed based on how long the tax returns were filed late, rather than based on the amount of any taxes due.
  • Chronically late taxpayers can have their employer notified to begin "back-up withholding" from wages or other payments.
  • .
  • .

There are also reasons some taxpayer choose not to file by Octiober 15th

  • With late filed tax returns the penalty for under-paying estimated taxes generally cannot be automatically computed, and since it must be done manually, it is possible that it could be overlooked, thus saving the taxpayer this amount of money.
  • Most audit selection scans are run against tax returns starting with those filed by April 15th and then those filed on or shortly after October 15th.  Filing delinquently means you've bypassed this part of the audit selection process.
  • For late, late breaking tax laws, filing delinquently can avoid filing an amended tax return. Many penalties and interest are assessed based on the first filed tax return.  Filing an amended return that shows a lower income tax assessment will not result is a reduction of penalties and interest as assessed based on the original filing for the year.
        Example: in November 2009 a new law was passed allowing a $6,500 home-buyer tax credit retroactively back to 2008 tax returns.  Those taxpayers who qualified for the $6,500 credit did not receive a rebate of any previously assessed penalties and interest for late paying or previous late filing of their 2008 taxes.  Had they filed delinquently in January 2010 when the new home-buyer tax credit forms where released, they may have completely eliminated all penalties and interest for 2008.


Colin M. Cody, CPA, CMA LLC
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