Tax tip: Avoid Late Filing Penalties

I had a few cases lately where small business organizations filed late tax returns and were then surprised by the size of the IRS late filing penalty. The penalty applies to regular for-profit, nonprofit and charitable organizations. The penalty is assessed even if the organization had no net income. The late filing penalty is applied separately and in addition to any late payment penalty.

The amount of the penalty is determined by the amount of time the return is late. For partnerships the penalty is also increased based on the the number of partners. The penalty can be appealed and in most cases it makes sense to do so.

To put some numbers to this discussion just as an example, a typical average late filing fee for a small business is about $2,500. The cost of representation to abate a penalty is about $500 to $1,000 depending on the steps required. This is why tax advisers say that it is better to file on time even when if all or the required information is not available.

For individuals, the penalties tend to be smaller but late penalties may also apply. IRS published information about late filing penalties here.


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