Late 2007 tax return filers will face penalties

Chances are if you still have not filed your 2007 tax return, you are going to face some penalties. Even in a case where you have filed an extension you should be aware that you could still be assessed penalties on any taxes owed. The deadline each year is the same, April 15th, except when it falls on a weekend and in that case, the tax filing deadline will be the following business day.

FileLate Returns

The tax code allows you three years to filelate a tax return if you either do not owe taxes or are due a refund. After three years, you forfeit all rights to any prior year tax refund money owed to you. On the other hand, if you owe the IRS they can go back as far as six years of prior tax returns and under special circumstances, with internal approval, even further.

Penalties

If you are to be penalized you will probably fall into one of these three categories.

1. You have filed your 2007 tax return on time but could not for whatever reason pay all of the tax you owed.- In this situation you will be charged a .5% penalty of the remaining tax due for each month that it goes without being paid. This can increase to 1% of the tax due if the tax remains unpaid after several attempts to collect. If you can show, justification for not paying, the penalty may be avoided.
2. You have a late tax return – If you go past the deadline and file a late tax return, when you owe tax, then you can be charged a late file penalty. Like the above, if you can show just cause, it may be avoided. However if not this is the stiffest of penalties at 5% of the tax you owe for each month it goes past due. This is a 4.5% late file penalty coupled with the .5% late fees. The longer this continues, the more it will cost you as the late fee continues to accrue and at five months, you can owe as much as 47.5%! (4.5% * 5 months + 25% late fee) An important side note: The minimum penalty once you pass the 60-day file late mark is the smaller of $100 or 100% of the tax owed.
3. You have filed an installment plan for your 2007 return – Even with an installment plan you will be assessed late fees. If you file your return on time and then filed an installment agreement, which the IRS accepted you would then be charged a .25% late fee for every month that you are past due; this is instead of the .5% on a typical late return.

No matter which of the above categories you may find yourself you will also have to pay interest on the federal taxes owed. This is generally the federal rate plus 3%. This interest is refigured every three months and compounds daily. The moral of this story is to file on time and pay as much as humanly possible if you owe any taxes. There are many ways to file your taxes each year, CPA, tax preparation companies and online. Be proactive, get your current returns in on time, and file any prior year’s tax returns as soon as you can. If you wait, too long the IRS can file late a return for you based on the income information they have on file for you. When this happens, you can rest assured that the IRS will not give you any preferential filing status or deductions.