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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
- 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
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
- 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
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
6004 Main Street
Trumbull, Connecticut 06611-2400
AICPA Alliance for CPA Firms
Private Companies Practice Section
American Institute of CPAs
Connecticut Society of CPAs
California Board of Accountancy
Institute of Management Accountants
12/26/04, listing page to be available in future: