As with many things within the tax code, it depends. It depends on the type of return you are filing, the jurisdiction you are filing in, and oftentimes how much unpaid tax was calculated on the return when finally filed.
The most common result will be penalties calculated for filing after extended deadlines (September 15 or October 15) and/or for not paying taxes by the original deadline. Often, the penalties are based on the unpaid taxes calculated on the return.
For individuals and corporations, there are two types of penalties the IRS implements; failure-to-pay penalty and failure-to-file penalty. Failure-to-pay penalty is 0.5% of the unpaid tax each month, up to 25%, until the tax is paid in full. The failure-to-file penalty is calculated as 5% of the tax owed each month until the return is filed, up to a maximum of 25%.
Pass-through entities (partnerships and S corporations) are charged $235 each month for each member until the return is filed with a maximum of 12 months. This means that if you have 10 members, you will be charged $2,350 each month up to a maximum of $28,200.
For businesses that tend to have a net loss resulting in zero income taxes due, there may still be taxes calculated on your return, which could be used to determine late filing penalties. Some states require minimum payments for businesses, or they calculate taxes on amounts other than taxable income, such as gross receipts or net worth.
Massachusetts is a great example of this as their excise tax is based on net worth, tangible property, or taxable income. In this case, a taxable loss for a business wouldn’t necessarily prevent you from having to owe taxes and/or penalties to MA.
For most MA tax returns, the failure to file a timely return (by the extended deadlines, when an accepted extension was made) is 1% of the unpaid tax per month up to 25%. The failure to pay taxes when due at the original deadline is also 1% of the unpaid tax per month up to 25%.
However, if a partnership decides to file late in MA, it will accrue a penalty of $5 for each day the partnership fails to file after the extended due dates.
Due to the different aspects of calculating late filing penalties, please consult with your contact at our office to determine what penalties you could be responsible for paying.
Jessica Prefume, CPA, is a Tax Supervisor at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with one of our audit or tax professionals, please contact our office at 781-453-8700.