If you obtained an extension for your 2011 personal tax return, today is the deadline for filing. No additional extensions will be granted and if you don’t file today, you will be assessed a failure to file penalty. The failure to file penalty is calculated based on the due date of your tax return (including extensions) to the date you actually filed your tax return. The penalty is 5% for each month the tax return is late, up to a total maximum penalty of 25% of the tax due as shown on your tax return. If your tax return is more than five months late, simply multiply your balance due by 25% to calculate your failure to file penalty.
If you owe taxes on your 2011 return, I highly suggest you file your tax return even if you can’t pay the full amount due in order to avoid the failure to file penalty. If you owes taxes and are not able to pay the full amount at the time you file, you may be assessed both a failure to pay penalty and interest. The failure to pay penalty is calculated based on the amount of tax you owe. The penalty is 0.5% for each month the tax is not paid in full. There is no maximum limit to the failure to pay penalty. The penalty is calculated from the original payment due date, which is the April 15th filing deadline (April 17th for 2011 tax returns) until the balance due is paid in full.
If you are unable to pay all taxes due you are encouraged to pay as much as possible in order to lessen the amount of penalties and interest charged. Based upon your circumstances, you may qualify for an agreement to pay in full the taxes owed within 60 or 120 days. Penalties and interest incurred will be less through an agreement to full pay within 60 or 120 days rather than seeking to enter into an installment agreement, which is a monthly payment plan.
When faced with an IRS debt, I highly suggest you work with a tax professional so that you are aware of the pros and cons of each of your options.