You do not want to pay the IRS late. Penalties and interest make it expensive. Even so, a business facing a short-term cash crunch may sometimes decide, after talking with a tax professional, that paying an income tax bill a little late is the least bad option.

What it can cost

• The failure-to-pay penalty is generally 0.5% of the unpaid tax per month, up to 25%
• The failure-to-file penalty is generally much larger, at 5% per month, up to 25%
• Interest also applies, and it can change each quarter

This is why you should always file on time, or file an extension, even if you cannot pay. An extension to file is not an extension to pay.

Never do this with payroll taxes

Payroll taxes are a very different matter. Withheld taxes are held in trust for the government. Failing to pay them can lead to heavy penalties, and responsible people can be held personally liable.

When it might be considered

This should be a last resort, not a plan. It may make sense to consider only if you know when the money will arrive and you can pay soon after the deadline.

Better options to explore first

• A short-term payment plan
• A long-term installment agreement
• A business line of credit, if the cost is lower
• Talking with your CPA before the deadline passes

If you do not know where the money will come from, do not simply wait. Contact a professional and look at your options.

Need help with your situation? Tax rules change and every situation is different, so please talk with a professional before acting on general information. Call Fajardo & Associates at 407-720-7220 to make an appointment.