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Late Penalties: What You Need to Know About the Late Penalty for Filing S-Corporation and LLC Business Tax Returns

You have already incorporated your business as an S Corp or LLC for the tax benefits. You’re ahead of the game. Continue to take advantage of your tax benefits and make sure you file your business taxes on time. The late penalty for filing business tax returns increases every year, and with the major tax changes of 2013, you do not want to deal with penalties and interest on top of increased taxes owed.

You may not be aware that there are multiple late penalties for filing your business tax return after the annual deadline. Keep in mind one important exception: If you have a refund coming your way, there is no penalty for filing late. This is because the penalties are calculated based on amount owed the IRS. But the truth of the matter is that as the owner of an S Corp or LLC business, you most likely owe taxes to the IRS. Continue reading to learn the specifics about the late penalties that will be incurred if you fail to file your business tax return on time.

The Breakdown: Late Penalties and Interest for Filing your S Corp or LLC Business Tax Return

If you owe taxes to the IRS, and you file after the national deadline,  there are three separate penalties that will be added to the amount owed. Each penalty is calculated differently, and we have outlined them below for your convenience:

1.    Failure to File Penalty: This is calculated based on the difference between the original tax return filing deadline and the date you actual file your tax return. The penalty is 5% for each month the tax return is late. There is a total maximum penalty of 25%.

2.    Failure to Pay Penalty: This is calculated based directly on the amount of taxes you owe the IRS. The penalty is 0.5% for each month the tax is not paid in full. Unlike the Failure to File Penalty, the Failure to Pay Penalty has no limit. This penalty is calculated from the original payment deadline until the balance due is paid in full.

3.    Interest: As with an overdue balance on your credit card, interest is calculated on the amount you owe to the IRS. Interest rates for the IRS change every three months, so it is important to stay on top of the deadlines to begin with. The interest rate is determined quarterly and is defined by the IRS as the federal short-term rate plus 3%. Keep in mind that the IRS compounds interest daily.

The financial situation of every S Corp and LLC is different, but most businesses would wince at the sight of the late penalties and interest accrued when they file their business tax returns late. In most cases, you will be faced with an increase in the thousands of dollars of taxes owed, all in late penalty fees and interest.

If you find yourself already in a situation where you have filed your tax return late, or perhaps have not filed it still, there is a slight change you may be an exception to the late penalty rule. If you have reasonable cause and the failure was not due to “willful neglect,” you may contact the IRS with evidence explaining your case. While late penalties may be forgiven, generally the interest accrued during the time passed will not be forgiven under any circumstances. A Certified Public Accountant (CPA) can contact the IRS on your behalf as your Power of Attorney in order to sort out your case.

How can I avoid the Late Penalty for Filing Business Tax Returns?

Now that you are armed with the information about the multitude of late penalties for filing your business tax return, it only makes sense to plan ahead and avoid the situation. Many S Corp and LLCs find it useful to hire and experienced and affordable Certified Public Accountant (CPA) who will handle all of their tax preparation and tax filing for them. With the higher education and extensive experience you would expect in an accountant, a licensed CPA can make sure all of the proper paperwork is filed in a timely fashion, ensuring you will avoid any late penalties and interest charges.

Call Acosta Tax and Advisory today at 954-674-0076 to schedule your free S Corp or LLC business tax consultation. You can also visit us at Mycpa.net and request a free consultation immediately online. We look forward to answering all of your S Corp and LLC business tax filing questions.