If you haven’t filed your 2023 income tax return with the IRS and still owe income tax from last year, the good news is that you still have time to correct these situations before being penalized.
The majority of taxpayers have until 11:59 PM on Monday, April 15. Some, however, get an extra day or two if they live in Maine, Massachusetts, or Washington, DC, due to holidays.
And others who live or work in federally declared disaster areas will have even more time to file and pay, thanks to extensions granted by the IRS. The IRS also granted an extension to individuals and businesses affected by the terrorist attacks on October 7 in Israel.
But if you are not in any of these situations and cannot file a complete return by Monday, at least submit Form 4868 to get an automatic six-month extension.
Keep in mind that this is just an extension to submit your return and avoid a penalty. It is not an extension of the payment of any outstanding balance. That amount is still due on April 15.
Therefore, if you think you still owe money to the government, in addition to requesting an extension, send the IRS a payment by Monday that comes as close as possible to the amount owed.
To get a reasonable estimate, look at your return from last year. Think in terms of your sources of income (wages, dividends, interest, capital gains, rental income, taxable withdrawals from retirement accounts, etc.). Also consider any major life changes, such as having a child, getting married, or getting divorced, that may have tax implications for you.
The high cost of doing nothing by Monday
Failing to file on time when you still owe taxes will subject you to a failure-to-file penalty, which is based on the delay of your return and the amount of unpaid tax. Specifically, it will be 5% of your unpaid taxes for each month – or part of a month – that your return is late. The IRS points out, however, that this penalty will not exceed 25% of the unpaid taxes.
If you do not pay what you owe by the tax filing deadline, you will also incur a failure-to-pay penalty. This amounts to 0.5% of your outstanding balance for each month or part of a month that it remains unpaid. It also will not exceed 25% of the total.
If both a failure-to-file penalty and a failure-to-pay penalty apply in the same month, you will not be charged more than a total of 5% (4.5% for failure to file and 0.5% for failure to pay), according to the IRS.
But the extra charges do not stop there. Remember also that your outstanding balance will be subject to interest.
That’s why, even if you cannot pay what you owe in full by Monday, at least send a partial payment to reduce the amount of penalties and interest that will accrue.
And inquire about how to set up a payment plan with the IRS, which can further limit your penalties and interest. If you owe a lot, it may be worth getting advice from a certified accountant or tax attorney who can represent you before the IRS to ensure you are choosing the best plan for your circumstances.
What if you file late but are due a refund?
If you are due a refund, in fact, you will not be penalized for failing to file if you miss the deadline. The fact is that these penalties only apply in cases where the taxpayer owes taxes and they are not paid by the due date. If a refund is due to the taxpayer, the April 15 deadline, in practical terms, means nothing. The taxpayer can file their return up to three years after the original due date, and the IRS will not only issue their refund but will also pay the taxpayer interest on the refund.
But if you exceed the three-year limit after the original due date, even if a refund is due, you will no longer be entitled to it.
Source: CNN