Filing an income tax return after the annual April deadline usually isn’t the end of the world, but there’s a right way and a wrong way to do it. Here are some common mistakes to avoid if you’re filing taxes late.
Mistake No. 1: Doing nothing in April
If you plan to file your tax return late, the IRS is usually fine with that — just request an extension by filing Form 4868 and you can get more time. The catch, however, is that you need to request that extension by the April deadline. Forget to do that and you’ve opened yourself up to a late-filing penalty of 5% of the amount due for every month or partial month your return is late. The maximum penalty is 25% of the amount due. So if you still owe, say, $1,000, that can mean shelling out an extra $250.
Mistake No. 2: Assuming you just owe what you owe
Paying later means paying more, because you’ll owe interest on anything outstanding after the April deadline, even if you get an extension. The IRS may also assess a late-payment penalty, which normally is 0.5% per month of the outstanding tax not paid by the April deadline (the maximum penalty is 25%). You can catch a break if you’ve paid at least 90% of your actual tax liability by the April deadline. The IRS also might let you off the hook if you can show “reasonable cause” for why you didn’t pay on time — though you’ll need to attach a written statement to your return. But the bottom line is that if you owe taxes, it may be a good idea to pay as much as you can in April, when you request the extension.
Mistake No. 3: Assuming you have to ask for an extension to get an extension
In a few circumstances, the IRS will give you an extension even if you don’t ask for one. Not knowing the rules could cost you time and potentially confuse matters. If you’re a U.S. citizen or resident who lived and worked outside of the country on the April deadline, for example, you get more time to file and pay without having to request an extension. People affected by certain natural disasters automatically get more time to file and pay as well (check the list of qualifying disasters here). Some members of the military also get more time automatically, depending on where they are and what they’re doing (see the rules here).
Mistake No. 4: Assuming you have six extra months to get it together
The standard extension will buy you an extra six months to file, which will get you to the middle of October. But if you’re one of the lucky few who get automatic extensions, don’t assume you’ve got the same amount of time. That out-of-the-country crowd we mentioned earlier gets just two extra months to file, for instance; the amount of extra time varies for people affected by certain natural disasters as well. Victims of storms and floods that took place in parts of Mississippi beginning March 9, 2016, for example, got an automatic extension to July 15. Members of the military could get more than six months in some situations.
Mistake No. 5: Forgetting about your extension deadline
Miss your extension deadline and the IRS can sock you with that 5% penalty for filing taxes late. If you really blow the deadline and your return is over 60 days late, you’ll pay either $135 (adjusted for inflation) or what you still owe, whichever figure is smaller. And remember, that’s on top of what you still owe in taxes. The good news is that the IRS may throw you a lifeline: You might not have to pay the penalty if you have “a reasonable explanation” for filing late, so again, you’ll need to attach a written explanation to your return.
Mistake No. 6: Assuming the IRS will hate you
There’s no need to risk making big mistakes on your tax return or missing valuable deductions because you’re rushing to meet the filing deadline and think the IRS will blacklist you for seeking an extension. It’s important to know what happens if you file taxes late and also to know that filing late is a common thing — for the 2016 tax season alone, the IRS expected to receive 13.5 million extension requests. In fact, extensions are a fact of life for many investors who don’t get their K-1s, which are statements of income from partnerships, until after April. The truth is that there’s no scarlet letter for filing late (as long as you get an extension). If anything, deciding to keep your tax return on your to-do list beyond April may warrant a badge of courage.
from NerdWallet
https://www.nerdwallet.com/blog/taxes/6-late-filing-tax-mistakes-need-avoid/
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