When The Chairmen of the Board sang “Give Me Just a Little More Time,” they didn’t have taxes on their mind, but the classic beach music tune could be the theme song for many taxpayers who are suddenly realizing the deadline is here. Returns that are not filed by midnight on Tuesday, April 17 are late and subject to penalties and interest.
The failure to file penalty is assessed when a return is filed late. The penalty is 5% of unpaid taxes for every month the return is late, and it starts the day after the filing deadline. Returns filed more than sixty days after the deadline are subject to a minimum fee of $210 or 100% of the unpaid tax balance, whichever is less.
Fortunately, the IRS has made it easy for taxpayers who can’t get their tax return filed by the deadline to get additional time and avoid the failure to file penalty. There are special rules for US citizens living abroad and for members of the military serving in combat zones, but ordinary taxpayers can also request an extension.
Using Form 4868, the Application for an Automatic Extension of Time to File, taxpayers are allowed up to six additional months to file their return. Once Form 4868 is accepted, the taxpayer has until October 15th to file. As the form name says, getting approved is automatic, and no reason for filing late has to be given. Filing an extension prevents a failure to file penalty from being assessed.
However, be aware that this is an extension to file, not an extension to pay. (You knew there’d be a catch, right?) The instructions for Form 4868 tell the taxpayer to estimate if tax is owed and to submit payment for this estimated balance prior to the April 17th deadline. Interest will be charged on any tax that is due but not paid by Tuesday. There is also a failure to pay penalty (currently ½ of 1%) for each month there is an unpaid tax balance. The failure to pay penalty can be avoided by paying at least 90% of the tax owed by the original filing deadline. Those without enough information to estimate their tax owed, or who are unable to send payment with Form 4868, should file anyway to minimize penalties. (See this link for more on what to do if you owe the IRS but cannot pay.)
We frequently encounter taxpayers who do not file extensions because they are confident they are due a refund. While it is true that returns that result in a refund won’t be assessed late filing penalties, it’s always a good idea to file for an extension just to make sure. Simply put, filing Form 4868 is the only way to be totally compliant with the law if you cannot file your tax return on time.
All states that have an income tax (seven do not) allow automatic six-month extensions just like the IRS does. However, the process for getting this extension varies by state. Some require filing a specific form, while others grant automatic extensions if a federal extension was filed. North Carolina taxpayers use form D-410 to request an extension. Again, this allows additional time to file the return; interest will be due on any tax not paid by April 17. Anyone who is required to file a return for other states should check with a tax professional to determine the proper way to file extensions in those locations.
Finally, while filing an extension offers a seemingly long time to file the actual tax return, it’s not a good idea to wait until the end of the extension period to file. Remember, interest and failure to pay penalties are being charged on any balance due. Anyone who is due a refund is allowing the government to hold their funds for no reason.
If you still haven’t filed your return, give us a call. We’ll help you decide if an extension is needed, and if so, file it for you. Go on and take care of your taxes so you can be like The Drifters and feel Some Kind of Wonderful!
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