Tax Day is here, and if you haven’t filed anything yet, you better get started.
The last day to file tax returns, or ask for an extension, is April 18. (It was the 17th, but everyone got a one-day extension after IRS computers crashed Tuesday.) But even if you file for an extension, you’re not off the hook. If you owe the government any money, you’ll likely face a late filing penalty fee and a late payment fee, too.
Here’s what to know:
• Be aware that the Internal Revenue Service can charge two types of fees: failure to file and failure to pay.
• Failure-to-file: The IRS charges as much as 5% of your unpaid taxes per month when you don’t file a return or request an extension by Tax Day, up to a maximum of 25% in total. If the return is filed more than 60 days after the due date (or extended due date) the minimum penalty is $205 or, if you owe less than that, 100% of the unpaid tax.
• Failure-to-pay: The IRS charges this if you file for an extension and you owe taxes. The fee is 0.5% of unpaid taxes per month, and there’s a limit of 25% of unpaid taxes. If both penalty fees apply, the maximum amount charged will be 5% per month.
• You may also owe the IRS interest that accrues on top of unpaid taxes and penalties. The interest rate is currently 5% per year, compounded daily, according to the IRS.
• If taxpayers do not owe any money, or would receive a refund after filing, there is no penalty for filing late. (Americans have until Tax Day to also file previous years’ returns if they are owed money from tax year 2014, filed in 2015). If this is the case, taxpayers have until 2021 to file their returns or they risk forfeiting their refunds.
See: 46% of Americans pay no federal income tax — here’s why
There are ways to avoid some of these fees, even if you are scrambling to file on Tax Day, experts say. The first thing to do is ask for an extension, which can be done by filling out Form 4868. Extensions give the taxpayer up until Oct. 15 to file the return. That doesn’t mean there will be no penalty fees, though, said Jim Dedyne, a CPA partner at Maner Costerisan in Lansing, Mich. Instead of paying both penalty fees for late filing and late payment, the taxpayer would just pay late payment penalty fees and interest, he said.
How to avoid fees
So what to do? If filing the return in its entirety is out of the question, perhaps because of missing documents, file for an extension and pay the government an estimate of what you think you owe in taxes. The IRS won’t charge late payment fees if a taxpayer pays 90% of their owed taxes when they file for an extension, which they can do with a direct deposit or credit or debit card (the latter options come with an additional fee). Interest will accrue on any remaining taxes unpaid after Tax Day.
Taxpayers can figure their estimated taxes by calculating adjusted gross income, taxable income, taxes, deductions, and credits for the year, according to the IRS. Last year’s tax return often helps as a guide, unless major changes have occurred since then. Filing an extension is a generally the best financial move, because failure-to-file fees cost more than failure-to-pay. “Your best bet is to file for an extension if there is no way you can prepare a closely accurate return,” said Dave Du Val, chief customer advocacy officer at audit defense firm TaxAudit.
A big reason not to rush
Hurrying to file a return may mean making mistakes, including forgetting documents or listing incorrect Social Security numbers.Those mistakes could lead to an audit.
Also see: My secret tax weapon costs 99 cents
If you can’t afford to pay
If taxpayers can’t pay their taxes in full on Tax Day, the IRS works with them to create an installment plan. There are a few types of plans, including short-term payment plans for 120 days or less, which have no additional fees other than late penalties and interest until the balance is paid in full, and long-term plans, for more than 120 days, which cost an additional $31 to apply for online (or $107 if applying by phone, mail or in-person). The IRS announced last fall it will offer penalty relief for taxpayers who were unemployed for 30 days or more and owe failure-to-pay fees.
Source : MTV
