When corporate tax returns are filed late, companies are penalized by the IRS. The cost of filing late could be even steeper if you fail to pay the taxes you owe on time. Fortunately, there are ways to avoid late corporate tax filing penalties. But if the penalty has already been assessed, you also have options.
Read on for a breakdown of how late corporate tax filing penalties are calculated, what to do if you incur a penalty and actions you can take to avoid it.
What Is The Penalty For Late Corporate Tax Filing?
Below are some penalties associated with late corporate tax filings that you may incur:
Late Filing Penalties
The late filing penalty is assessed when you fail to file your tax return by the due date.
Underpayment of Estimated Tax Penalties
If you pay an amount for estimated taxes that’s less than you actually owe and fail to remit the difference by the due date, you could also be on the hook for an underpayment penalty. It’s determined by the amount of the underpayment, the period for which it was due and underpaid and any applicable interest that accrues while the balance remains unpaid.
Penalty For Late Payment
The failure to pay the penalty is assessed if you don’t pay the business taxes owed, as reported on your tax return, by the due date. It’s based on the period your tax debt is outstanding, and the amount is capped at 25 percent of the balance.
Interest On Penalties
The IRS also charges interest on late filing, underpayment and late payment penalties. The amount you’ll pay varies, and you can expect interest to accrue until you pay in full.
How IRS Calculates The Penalty for Late Corporate Tax Filing
Here’s how the IRS computes the penalty for late corporate tax filings:
- Failure to File Penalty only: 5 percent of the unpaid tax balance (capped at 25 percent)
- Failure to File and Failure to Pay Penalty: if both are applied to your account in the same month, the failure
If you haven’t resolved your tax debt with the IRS after five months, you’ll no longer be assessed a failure to file penalty. However, the failure to pay the penalty will continue until it reaches 25 percent of your unpaid balance.
Also, note that your minimum failure to file penalty is $435 (or 100 percent of the taxes owed) if you missed the filing deadline by more than 60 days. This rule is applicable to tax years 2020, 2021 and 2022.
What To Do If You Incur a Penalty for Late Corporate Tax Filing
If you’ve already incurred a late filing penalty, here’s what to do next.
Pay The Penalty
You can pay the penalty via the IRS website from your bank account or using your credit card, debit card or digital wallet. You can also mail a check or cashier’s check if you prefer and send it to the address listed on the notice to the IRS.
Remove or Reduce The Penalty
Seek penalty relief by calling the IRS using the toll-free number listed at the top right corner of the letter received in the mail. If your request is denied, you can submit a written request by mailing Form 843: Claim for Refund and Request for Abatement to the IRS.
Dispute The Penalty
Do you have a reason to believe that you don’t owe the amount listed on the notice? You have a right to dispute the penalty by contacting the IRS by phone at the number on the letter. If you’d prefer to send in a written dispute, mail it to the address on the letter and be sure to include documents that support your dispute.
How To Avoid A Penalty
Fortunately, there are ways to be proactive and avoid late filing penalties.
Apply for an Extension to File
Consider applying for an extension to file your tax return to avoid penalties. Also, be sure to submit it to the IRS before your tax return is due. Also, keep in mind that the extension does not apply to your tax bill, and you could face penalties if you fail to pay on time.
Get A Payment Plan
Request a payment plan if you also need an extension to pay your tax bill. The IRS also has a long-term payment plan or an installment agreement for business owners who owe $50,000 or less in back taxes (including interest and penalties). You’ll get up to six years (72 months) to pay what you owe, generally in equal monthly installments.
Seek Professional Help
It can be overwhelming to resolve tax penalties and back taxes on your own. Fortunately, there are teams of licensed tax professionals who can help you and are available to assess your situation to ensure you only pay the exact amount you owe.
