Here's What Happens When Your Accountant Fails to File Your Tax Return on Time
Accountants aren't perfect. Read on to see what recourse you have if your accountant is late with your tax return.
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My friend Angela used to file her own tax return, since it was pretty easy work. But in 2023, she underwent two big changes: She became a homeowner jointly with her husband, and she went from being a salaried employee to becoming self-employed.
Because of this, she and her husband decided to use an accountant to tackle their 2023 tax return this past April. And while she did her homework by soliciting recommendations from friends and hiring an accountant with rave reviews, things went awry in the end.
To make a long story short, her accountant goofed big time and was late in filing her tax return by a few weeks. And while he wound up making things right, it was a stressful situation to experience.
When your accountant drops the ball
A big reason to hire an accountant to handle your taxes is to help ensure that the process goes smoothly from start to finish. But accountants are human and can make mistakes, including failing to submit your tax return on time -- despite having all of the right information to do so.
If your accountant fails to file your tax return on time but you're due a refund from the IRS, nothing bad really happens. In that situation, your refund simply hits your bank account later than it would've with an on-time filing. That's not awesome, but it's not terrible if you're not so desperate for that money.
But if your accountant fails to file your tax return by the deadline and you owe money to the IRS, two very bad things can happen. First, you can be hit with a failure-to-file penalty equal to 5% of your unpaid tax bill per month or partial month your return is late. You can also get hit with a late payment penalty equal to 0.05% of your unpaid IRS balance per month or partial month you're late, plus interest.
In my friend's case, she and her husband owed a little bit of money because even though they had mortgage interest they could deduct on their 2023 return, they didn't pay enough estimated taxes on her freelance earnings. And because their return was late, they were subject to both of the aforementioned penalties.
The good news is that Angela's accountant made things right. He owned up to the error and covered the cost of their penalties. But not every accountant will take that step. And also, had the penalties been more significant, he may not have been willing to pay them. So it's important to be vigilant about getting your taxes in on time, even if you're using an accountant.
Once you've completed all of the right paperwork, follow up with your accountant to make sure they've submitted your return in time for the deadline. And if possible, ask for proof. It's really the only way to know that the job has definitely been done.
The IRS might also cut you a break
If your accountant doesn't file your tax return on time, you may be able to get out of associated penalties via a process called first-time tax abatement. Think of it as a get-out-of-jail-free card for tax-filers in good standing who haven't been penalized before.
If you contact the IRS and explain that your accountant dropped the ball, you may be able to avoid a penalty for a late tax filing. If not, be firm with your accountant and try to push them to do the right thing and cover the costs you've incurred due to their error. They may agree for the purpose of protecting their reputation.
Of course, whether you decide to keep working with an accountant who failed to file your taxes on time is up to you. If you've had a relationship with them for years and this was a one-time slip-up, you may decide to let it slide -- especially if your accountant owns their mistakes and offers to cover any penalty you incur due to their carelessness. But it also wouldn't be a rash decision to decide to use someone else in the future, since failing to submit a return on time is a pretty big deal for someone whose core job is to file taxes.
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