Why is it important to file the tax returns on time ?
As an individual and/or business, it is always recommended to file your tax returns on time not only to keep your affairs well organized and up-to-date, but also to stay on top of the your financial affairs. If any taxes are owing, It also make sense to file tax returns on time because of interest and penalties associated with late filing.
In order to explain the above point, lets look at an example where an individual tax return for 2015 was filed late by two months and $1,000 was owing in taxes. There will be a late filing penalty of 5% ($50) of tax owing that will be charged. In addition to the penalty, an interest @ 1% for each full month will also be charged. In this example, the return was filed late by two months, so a total of 2% ($20) of taxes owing will be charged. Because of late filing the taxpayer got penalized by a total of 7% of taxes owing. Maximum period for which the interest can be charged in this event is 12 months.
This get worse if late filing penalties were charged in any of the three preceding years. In such an event, late filing penalties and rate of interest rate will double to 10% and 2% per full month respectively. Using the same example as above, amount of late filing penalty will be $100 and amount of interest charged will be $40. Maximum period for which the interest can be charged in this event is 20 months.
Some of my clients asked me, should they file the taxes by the deadline, even though they know they don't have money to pay the taxes owing. My simple answer to them has always been "Yes". Filing the tax return on time will determine how much exactly is owed plus it will save the late filing penalty