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Tax Extensions & Penalties

We have only a few DAYS left before the filing season is over.  Further, automatic extensions will take your tax return up to October 15th this year. We expect to see a lot more taxpayers filing their tax returns late because, if they have their extensions filed and they owe taxes, the penalty is only one-half of one percent.

Many of us are still scrambling to get our taxes together.  Since most of us are not prepared to file the tax return by the April deadline, what happens if you can’t get your taxes done by the due date?

If you need more time, you can get an automatic six-month extension from the IRS. You don’t have to explain why you’re asking for more time, either. Here are a few important things to know about filing an extension:

  1. File on time even if you can’t pay.  If you complete your tax return but can’t pay the taxes you owe, do not request an extension. Instead, file your return on time and pay as much as you can. That way you will avoid the late filing penalty, which is higher than the penalty for not paying all the taxes you owe on time. Plus, you do have payment options. Apply for a payment plan using the Online Payment Agreement tool on IRS.gov. You can also file Form 9465, Installment Agreement Request, with your tax return. If you are unable to make payments because of a financial hardship, the IRS will work with you. Filing an extension on time will reduce your tax penalties by a LOT! Late filing penalties go from 5% of the tax owed down to ½ of 1% of the tax owed, with an extension!!
  2. Extra time to file is not extra time to pay. An extension to file will give you six more months to file your taxes, until Oct. 15. It does not give you extra time to pay your taxes. You still must estimate and pay what you owe by the April deadline (usually April 15th). You will be charged interest on any amount not paid by the deadline. You may also owe a penalty for not paying on time. But filing an extension will reduce the penalty (see #1 above).
  3. Use IRS Free File to request an extension.  You can use IRS Free File to e-file your extension request. Free File is only available through the IRS.gov website. You must e-file the request by midnight of the April deadline. If you e-file your extension request, the IRS will acknowledge receipt.
  4. Use Form 4868.  You can also request an extension by mailing a Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. You must submit this form to the IRS by the April due date. Form 4868 is available on IRS.gov.

You don’t need to submit a paper Form 4868 if you make a payment using an IRS electronic payment option. The IRS will automatically process your extension when you pay electronically. You can pay online or by phone.

  1. Electronic funds withdrawal.  If you e-file an extension request, you can also pay any balance due by authorizing an electronic funds withdrawal from your checking or savings account. To do this you will need your bank routing and account numbers.
  2. Consider Form 1127. You can also request filing IRS form 1127 if there is a financial hardship that does not allow you to send money in with the extension or the tax return. This form does NOT give a free pass not to pay taxes. The form provides for NOT having to pay penalties and the interest on penalties IF you can prove financial hardship.

 

 Here are some points to consider for this period:

  • Extension Form 4868 (automatic extension of time to file for up to 6 months) The IRS must approve an extension if you file it by the April deadline.

 

  • Pay taxes by credit card, check, money order or electronic payment (Can be paid over the phone or via internet for a fee) Remember that paying by credit card can cost fees from both the IRS AND the credit card company. Might consider a cash advance, deposit into a checking account, and write a check to IRS for taxes owed.

 

  • Late payment WITH extension is ½ of 1% of any tax that is not paid by due date. Having an extension allows you to pay the least amount of any underpayment penalty if you have one.

 

  • Late payment WITHOUT extension is 5% of tax owed (cheaper to file an extension). Remember that in addition to a penalty for late payment, there is also interest charged by the IRS that is compounded daily. Therefore, filing an extension is so much better to do.

 

  • You owe less than $50,000 and can’t pay the tax, file form 9465 (IRS will accept the agreement you propose. There is a fee, and the interest is compounded daily). The IRS gives you up to 6 years to pay taxes owed, but you can NOT be late in filing for the next 5 years’ returns.

 

  • Form 1127 allows you to file and pay taxes, late if you have financial hardship, without an extension (severe hardship must be proven.)

 

Finally, Congress allows the US State Department to revoke, or deny a passport to any US citizen who owes $50,000 or more to the IRS, if you do not have a written payment plan in place.

 

Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.

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