These are the penalties for filing taxes late

Penalties for filing taxes late are deliberately set high enough to encourage taxpayers to file in a timely manner. On top of that, the IRS can impose additional penalties and interest to any unpaid taxes, increasing your bill even further.

It’s important to make an effort to file your taxes on time or file for a tax extension. Either way, make sure you know the penalties you might face and seek help for filing taxes late.

Penalties for Filing Your Taxes Late

Taxpayers who do not file their taxes on time are subject to a failure-to-file penalty. In addition, taxpayers who file taxes on time but do not pay the taxes they owe will also be fined. Here are a few penalties for being late on your taxes. 

RELATED: Take a look at the most ridiculously cheap ways to lower your taxes:

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1. Contribute more to a retirement account

If you put money into a traditional IRA or 401(k) plan, you'll benefit in two ways. First, you'll get the financial security that comes with having savings available in retirement, and the earlier in life you start contributing, the more opportunity you'll give your money to grow. But you'll also benefit from a tax perspective, because the amount you contribute will go in pre-tax. What this means is that if you make $50,000 a year but put $5,000 into your 401(k), you'll only pay taxes on $45,000 of income. Talk about a win-win!

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2. Donate items you no longer use

Is your basement or hall closet overflowing with clothing, tools, and gadgets you don't need? If you donate those items to a registered charity, you'll get to claim a deduction on your taxes. All you need to do is obtain an itemized receipt of what you give away to verify your donation, and you're all set.

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3. Open a flexible spending account

Medical care can be a huge expense for some families. Americans spent an estimated $416 billion on out-of-pocket medical expenses in 2014, and that number is expected to climb to $608 billion by 2019. But if you sign up for a healthcare flexible spending account (FSA), you'll get to pay for eligible medical expenses, like copays and prescription drugs, with pre-tax dollars. For 2016, you can allocate up to $2,550 to an FSA, which means that if your effective tax rate is 25%, you'll save $637 by contributing the maximum. But don't make the mistake of overfunding your FSA. The money you contribute goes in on a use-it-or-lose-it basis, so if you put in the full $2,550 but only rack up $2,000 in eligible expenses, you'll have to kiss that remaining $550 goodbye.

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4. Use pre-tax dollars to pay for child care

Childcare is one of the greatest expenses families with young children face. The average American household currently spends $10,192 a year on full-time day care center care, $7,700 a year on regular after-school babysitting, and $28,900 on a full-time nanny. The good news, however, is that you can shave a fair amount of money off your tax bill by opening a dependent care FSA. Similar to a healthcare FSA, a dependent care FSA allows you to allocate pre-tax dollars to pay for eligible child care expenses, which include preschool and summer camp. For 2016, a couple filing a joint tax return can contribute up to $5,000 a year in pre-tax dollars. If you max out that limit and your effective tax rate is 25%, you'll save $1,250 in taxes. The only catch is that like a healthcare FSA, if you end up spending less during the year on eligible expenses than what you put in, you'll forfeit your remaining balance.

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5. Sign up for commuter benefits

Traffic and rail delays can be a huge source of daily aggravation. But if your commute can't serve the purpose of helping you relax and ease in and out of your workday, it can at least help you lower your taxes. All you need to do is sign up for commuter benefits through your employer, and you'll get to use pre-tax dollars to pay for the costs you already incur. For 2016, you can allocate up to $255 per month in pre-tax dollars for transit and up to $255 a month for parking for a combined total of $510. If you hit that maximum and your effective tax rate is 25%, you'll save $1,530 a year on your taxes.

Nobody likes paying taxes, and there's certainly no reason to pay more than you have to. With a few smart moves, you can lower the amount you ultimately fork over to the IRS and keep more money in your pocket.

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How Much You’ll Owe for Filing or Paying Your Taxes Late

The penalty for not filing on time can be as much as 5 percent of your unpaid taxes each month that you are late, up to 25 percent. The failure-to-pay penalty is 0.50 percent each month your IRS payment is late, up to 25 percent, according to the IRS. But, the failure-to-file penalty can be reduced to 0.25 percent if the taxpayer files a return and requests an installment IRS payment plan to repay their debt in full.

If both the failure-to-file penalty and failure-to-pay penalty apply in the same month, the maximum amount charged for both penalties is 5 percent per month. Taxpayers can avoid these late filing penalties by filing on time or filling out the appropriate paperwork for a tax extension. But keep in mind, you must request the extension by the tax due date and you must have paid 90 percent of your tax bill to avoid a failure-to-pay penalty.

Know: Is Taking Out Loans to Pay Off the IRS a Good Idea?

Paying Back Interest on Unpaid Taxes

For a taxpayer who owes unpaid taxes, interest will accrue on the amount owed in addition to the penalties covered earlier. This interest penalty compounds daily and is charged at a rate equal to the federal short-term rate plus 3 percent.

As an example, consider a taxpayer who fails to file their taxes when due on April 15. Assume the taxpayer files his taxes on June 15 and owes the IRS $2,000:

  1. This taxpayer will be assessed a failure-to-file penalty of 5 percent for each month.
  2. Next, a failure-to-pay penalty will be assessed at 0.50 percent each month, including the partial month of June.
  3. Last, interest will accrue on the unpaid taxes and compounds daily, at a rate of 3 percent above the federal short-term rate, beginning the day after taxes were due.

How to Avoid a Penalty for Filing Taxes Late

The IRS allows taxpayers a two-month or six-month filing extension. During this extension, the taxpayer will not incur a failure-to-file penalty. However, the failure-to-pay penalty and interest on unpaid taxes might still be charged. Even if you are granted an extension to file your taxes, you still need to pay your taxes on time.

Is There a Penalty for Filing Taxes Late If I Owe Nothing?

At the same time, there is no IRS penalty for filing late if you expect to receive a tax refund. In fact, no extension is required under this circumstance.

When Are Taxes Due in 2019?

The last day to file taxes is typically April 15, unless this date falls on a weekend or holiday. In 2019, all 2018 tax returns are due on Tuesday, April 15, 2019, except if you live in Maine or Massachusetts. Residents in those states have until April 17, 2019 to file their tax return because April 15 is Patriots’ Day and April 16 is Emancipation Day.

Click through to read more about the average IRS refund amount.

More from GO Banking Rates: 
TurboTax Free and Paid Options Review: File Accurate Returns Quickly   
The Complete Guide to Filling Out Your W-4 Form 
What to Do If You Lost Your W-2

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Cynthia Measom and Taylor Bell contributed to the reporting for this article. 

This article originally appeared on GOBankingRates.com: These Are the Penalties for Filing Taxes Late

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