April 15th may be more than six months away but it is never too soon to start thinking about how and when you will file your tax return. If all taxes due are not paid on time, you run the risk of penalties and interest. This is not a situation most people want to be in.
You avoid penalties by withholding a sufficient amount from your earnings or paying a quarterly estimated tax. However, you can get a waiver of the penalty for underpayment if:
- you suffered some financial misfortune caused by a disaster or “unusual circumstance” and it just wouldn’t be fair to impose a penalty, or
- you retired after age 62 or became disabled during the tax year
So long as your underpayment was not due to “willful neglect,” the IRS will consider overlooking the penalty. Naturally, you still have to report the estimated tax penalty in your return.
Speaking of penalties…
If you miss the April 15th tax filing date, an additional clock starts ticking. The penalties and interest on what you owe mount, and they will not stop until the matter is resolved. There are some automatic 6-month extensions for filing individual tax returns for citizens living and serving in the Armed Forces outside the United States.
Everyone else can apply for an automatic 6-month extension by filing IRS Form 4868. The form must be filed by April 15th.
If you are owed a refund, there is no penalty for missing the April 15th filing date.
The big “however”…
The IRS makes it clear that an extension of time to file your return does not grant you any extension of time to pay your tax liability.
Nevertheless, there are valid reasons…
Our personal and financial lives are fraught with the unexpected. Unforeseen circumstances–fire, flooding, business reversals–can place records keeping and tax accounting on the back burner.
On the other hand, unexpected financial windfalls or unanticipated income could have tax liability consequences. The extra filing time could provide the breathing room to gather the documentation, fill out those additional forms and take advantage of what our tax code offers to reduce that tax bill.
To recap…
When You File that Extension Request, the Due Date Gets Pushed, but…
- You still owe outstanding taxes
- The tax must be paid by April 15, or penalties/interest will accrue
- If you cannot pay all/anything, consider requesting a time payment or offer in compromise. (Note: Expect an additional charge to set up a payroll deduction or direct debit agreement to pay off your tax bill.)
Your extension request is in. Now what?
If you need assistance with filing your tax return that is on extension or are considering extending a tax return in the next tax year, reach out to us. We can assist you with the process from start to finish.