Now that the initial tax deadline has passed, If you did not complete your tax return, you ought to have submitted Form 4868, Application for Automatic Extension of Time to File, with the IRS.
The extension offers you an additional six months to file your tax return, making it due on Oct. 16, 2023. With the additional time, it’s tempting to just breathe a sigh of relief, shelf your paperwork, and ignore your filing for the time being.
But before you do so, here are some things to consider:
Do as much as you can on your return.
Prep as many aspects of your return as you’re able to now if you haven’t yet. Make an estimate if you’re waiting for information from another person. Make a note of projected amounts on your return so you may refer to them later.
Keep a notepad or a list on your computer of tax things you still need (use a checklist) and queries you have while you prepare your return. Cross the information off the list when you discover it. Also, write down how you arrived at various amounts, such as the square footage of your workplace or the number of days you spent at a vacation property you own. Save these notes beside your tax return. If the IRS ever challenges something on your return, your notes will be able to assist explain where you acquired your information.
If your return is complicated or you continually discover deductible receipts, you may be tempted to postpone filing your return. But rather than waiting, file now. If you discover a substantial tax item after you have filed your return, you may always file an amended return.
Keep your tax documents organized.
Take a couple of minutes before filing your tax records to organize them so they’re easier to locate afterwards. Make any relevant notes on credit card statements and receipts. Mark tax papers using check marks to indicate information previously recorded on your tax return. A little forethought now will spare you from having to start from scratch when you return to work.
You can’t get a refund until you file
If you owe the IRS money, file your return and obtain your refund as quickly as you can. “Why am I allowing Uncle Sam to keep my money?” ask yourself. That money belongs to you, and there are several things you can do with it. You might, for example, use money to pay off any credit card debt. You might even utilize it to invest in your company, stocks etc.
If you owe more tax, you could be penalized
Even if you paid tax when you applied for an extension, you may find yourself owing more when you complete your return. Adding fines and interest to your tax bill simply makes matters worse.
Don’t forget to enter payments you made with your extension
Be mindful to record any taxes you paid when you applied for the extension when you continue working on your tax return. This way, you avoid overpaying. There is no requirement to tell the IRS that you applied for an extension when you finish your return.
How to Check the Status of the Extension
Federal: If you send your extension through US mail, you must contact the Internal Revenue Service (IRS) to inquire about the status of your extension.
This is currently not possible on the IRS website. Call the IRS customer care line to find out if your extension request was received and accepted.
State: If your state mandates you to file a separate extension application from the federal tax extension application, you must contact the taxation authorities in your state to inquire about its progress. Call the taxpayer service hotline and inquire whether your documents arrived on time.
Paying any tax due
The regular tax extension allows you to file your tax return once the regular deadline has passed. It does not, however, provide you extra time to pay the taxes you may owe. That means you’ll face penalties and interest if you fail to pay your tax balance by the due date.
Even if you are unable to pay it all right now, pay what you can. Penalties and interest are calculated based on how much you owe and how long you have owed it.
The late payment penalty is 0.5% of the unpaid tax debt every month.
The highest late payment penalty you can be charged is 25% of the unpaid tax.
If your tax balance is $2,000, for instance:
- Penalty per month = $2,000 x 0.5% = $10
- Total possible late payment penalty = $2,000 x 25% = $500
If you’re certain that you’ll be out of the United States on tax day, there’s a two-month automatic grace period that enables you to postpone filing and paying taxes without penalty, but you’ll still be charged interest as of the day following the tax filing deadline.
Unpaid tax interest accrues daily from the initial due date of the return until the day you pay in full.
The rate is determined using the current federal short-term interest rate (.81% plus 3%.)
Because interest is calculated daily, you will owe 0.0104 of the sum for each day you are late.
For example, if you owe $2,000 in taxes and fail to pay them by the deadline, you will be charged:
- Annual interest rate =.81% + 3% = 3.81%
- Annual interest of 3.81% divided by 365 days = .01%
- Penalty each day: $2,000 x 0.01% = $0.20
Compounding interest causes the principle amount plus accumulated interest to be recalculated daily.
When tax extensions are rejected
Even if filed before the specified deadline, certain tax extensions are denied on or after that date. If your extension request is refused, the IRS will notify you by email or letter. While the causes behind this vary, the following are the most common:
On the extension form, there are misspellings, swapped numbers, and other problems.
Out-of-date information, such as outdated residences or last names that do not correspond to IRS data
In these circumstances, the IRS gives a window of time—typically five days—during which you can address difficulties and amend errors in your request and resubmit it.
Luckily at PSACPA, you can have a professional handle your taxes from start to end. Simply contact us at 301 879 0600. Help is just a phone call away.