The 10× penalty math
The IRS charges two separate penalties. Not filing your return on time costs 5% of the unpaid tax for each month it's late. Not paying on time costs 0.5% a month. That's a 10× difference.
Example: you owe $10,000 and miss October 15 by three months. Not filing could add about $1,500. If you had filed on time and just owed the balance, the late-payment penalty would be about $150. Interest is added either way.
Example only. Your numbers depend on your situation. Both penalties are capped at 25%, and a minimum penalty applies if a return is more than 60 days late.
What to gather today
You don't need perfect books to file. Reasonable, honest totals are enough to start.
- Every 1099 you've received (1099-NEC, 1099-K, 1099-MISC). No forms? Your total business deposits for the year work as a start.
- Business expense totals: bank and card statements, supplies, software, phone and internet
- Your mileage log or a reasonable record of business miles
- Home office measurements, if you work from home
- Any estimated tax payments you made this year
- Your extension confirmation and last year's return
Missing 1099s? I can check what the IRS has.
Clients and payment apps report your income to the IRS. As your Enrolled Agent, I can pull your wage and income transcript to see what's been reported under your name, so your return matches what the IRS already sees.
Can't pay the balance? You have options.
Once your return is filed, many people qualify for an IRS payment plan with an affordable monthly amount. If you have a clean history, first-time penalty abatement may remove some penalties. The IRS decides eligibility, and I'll tell you honestly what fits your situation.
Written by Aruna Surapaneni, EA. Licensed to represent taxpayers before the IRS, based in Rochester Hills, Michigan. This guide is general information, not advice for your specific situation.