If you use a corporation to keep your business separate from your personal affairs, the Internal Revenue Service will expect to receive a corporate income tax return by the filing deadline each year. When you miss the filing deadline, the corporation may get hit with one or more tax penalties that ultimately increases the company's income tax bill. If you're going to be late, filing as soon as possible and paying any tax owed with the return is the only way to minimize penalty charges.

Form 1120 Deadline

Form 1120 -- the tax return form for "C" corporations -- is always due on or before the 15th day of the third month after the corporation's tax year closes. If you file the corporate tax return after the deadline, and haven't requested an automatic six-month extension, the corporation will begin accruing penalty charges if income tax is owed to the IRS. When a "C" corporation return is filed late, but not by more than 60 days after the deadline, the minimum tax penalty is the smaller of $135 or the outstanding tax reported on the return.

Potential Tax Penalties

There are two tax penalties that may apply when a corporation files its tax return after the deadline. One is for filing the return late and the other for paying income taxes late. The maximum late-filing penalty corporations can be charged is 25 percent of the outstanding income tax the business owes, which accrues at the rate of 5 percent each month, or part of a month, that the return isn't filed and the tax remains unpaid. As a result, corporations that fail to file Form 1120 in a timely manner, but don't owe additional tax with it aren't subject to any late-filing penalty.

If a corporation is subject to the late-filing penalty, it will also have to pay late-payment penalties as well. The late-payment penalty increases a corporation's outstanding tax bill at the monthly rate of one-half of 1 percent until its maximum penalty of 25 percent is reached or all taxes are paid – whichever occurs first. Note that both penalties apply concurrently. However, during any period a corporation accrues a late-filing penalty, it's reduced by the monthly late-payment penalty and decreases to 4.5 percent.

Interest Accrues Indefinitely

Interest, which can be thought of as a penalty, is charged on a corporation's unpaid tax balance, as well as the outstanding penalty charges that have accrued. The rate of monthly interest that applies is tied to the federal short-term rate, then increased by three percentage points. Unlike the two tax penalties, there's no limit to the amount or duration that interest can increase what the corporation owes. The IRS will apply monthly interest until the corporation's tax is entirely paid off.

Reasonable-Cause Exception

Convincing the IRS that a reasonable cause exists for filing Form 1120 late can get one or more penalties waived. To use this reasonable-cause exception, you must have exercised “ordinary business care and prudence.” The IRS representative who evaluates your eligibility for the exception will make a decision based on the facts and circumstances surrounding the late filing after considering factors such as your history of paying or filing late and the amount of time it takes for you to submit the corporate return once the circumstances preventing you from filing it on time no longer exist.