Deadline for Filing Your Return
Generally, individual tax returns are due on the 15th day of the fourth month after the close of your tax year. Since virtually all individual taxpayers file on a calendar year, the due date for most individual taxpayers is April 15. That is the due date for both filing your return and paying any balance-due taxes. If the April 15 due date falls on a Saturday, Sunday or federal legal holiday, the due date is delayed until the next business day. Most states have the same due date, although some give additional time.
U.S. citizen and U.S. resident taxpayers who are out of the country on the April due date may qualify for an automatic two-month extension to file their return and pay any federal income tax that is due. This applies if they are living outside of the United States and Puerto Rico and their main place of business or post of duty is outside the United States and Puerto Rico, or they are in military or naval service on duty outside the United States and Puerto Rico. Merely being out of the U.S. on vacation on the return due date isn’t a reason to qualify for the automatic 2-month extension.
The deadlines for filing and paying, if there is a tax due, is extended for 180 days after the latter of the last day a military taxpayer was in a combat zone/qualified hazardous duty area, or the last day of any continuous qualified hospitalization for injury from service in the combat zone/qualified hazardous duty area. In addition to the 180 days, the deadline is also extended by the number of days that were left for the individual to take action with the IRS when they entered a combat zone/qualified hazardous duty area.
Proof of Filing
If a paper return is being filed, it is considered filed on time if it is properly addressed, has sufficient postage and is postmarked by the due date. It may be appropriate to obtain a proof of mailing if there is a balance due on the return, since both the late filing penalty and the late payment penalty are based on the amount of the balance due. This is especially important if the amount of balance due is sizable and the returns are mailed close to the due date. If the return is sent by registered mail, the date of the registration is the postmark date. The registration is evidence that the return was delivered. If sent by certified mail and the receipt is postmarked by a postal employee, the date on the receipt is the postmark date. The postmarked certified mail receipt is evidence that the return was delivered. Note: A private postage meter date is not considered to be valid proof of mailing.
In addition to filing paper returns through the U.S. Postal Service, the IRS has designated several private delivery services that taxpayers can use to send their returns to the IRS. The postmark date for these services is generally the date the private delivery service records the date in its database or marks on the mailing label. The private delivery service will explain how to get written proof of this date.
For e-filed returns, the date of an electronic postmark given by an authorized electronic return transmitter is considered to be the filing date if the electronic postmark’s date is on or before the filing due date.
Reasons for an Extension
There are valid reasons for not filing a tax return on time, and there is no stigma associated with doing so. The following are typical reasons that taxpayers file an extension:
- Waiting for a K-1 Distribution Form from a partnership or estate.
- Need additional time to fund certain self-employed retirement plans.
- Taxpayer suffered a casualty and the tax documents were lost.
- Taxpayer or spouse is ill.
- Taxpayer or spouse is deceased.
These are by no means the only valid reasons for an extension, but are shown as examples.
If You Need Additional Time
If you need additional time to file your return, the IRS provides two forms of extensions. The extension used by most taxpayers is Form 4868; the other one, Form 2350, is used by taxpayers living and working overseas and is not discussed in this brochure. CAUTION: It is important to note that these are extensions of time to file your return, not an extension to pay your tax liability. Even if you file for and are granted an extension of time to file, interest and late payment penalties (discussed later) will apply to any balance due on the return from the original April due date.
Automatic Six-Month Extension – This extension gives you until October 15 to file your return. If you expect to owe, estimate how much and include an extension payment. If you owe taxes when you do file your extended tax return, you will be liable for both the late payment penalty and interest from the due date. If the October 15 due date falls on a Saturday, Sunday or legal holiday, the due date is delayed until the next business day. Most states have the same due date, although some give additional time.
While the extension may be automatic, it is still necessary to submit a request for the extension. This is done on IRS Form 4868, which can be filed electronically or on paper. If you aren’t able to file on time, the request should be submitted by the regular due date of the return, even if you owe no tax or will be entitled to a refund once you file the return.
It is not a good idea to delay filing your return because you owe taxes. The late filing penalty is 5% per month (maximum 25%) and can be substantial. It is generally better practice to file the return without payment and avoid the late filing penalty. We can also establish an installment agreement which allows you to pay your taxes over a period of up to 60 months.
Interest on the Balance Due
An extension does not extend the time taxpayers have to pay their tax liability. Therefore, if money is owed on a return that is filed after the original April due date, the taxpayer will be liable for interest on any unpaid balance. The interest charge continues to run until the tax is paid. Even if there is a good reason for not paying on time, the interest will still be assessed. The extension request includes the ability to make a payment toward the estimated tax liability.
In addition to interest, a taxpayer can also be liable for a late filing penalty and a late payment penalty. Having a valid extension will avoid the late filing penalty, but not the late payment penalty.
Late Filing Penalty – A penalty is usually charged if the tax return is filed after the due date and the taxpayer has not filed a valid extension or the extension due date has passed. The penalty is 5% of the balance-due tax for each month (or part of a month) the return is late.
- Maximum Penalty – The maximum penalty imposed is 25%.
- Minimum Penalty – If your return is more than 60 days late, the minimum penalty is $210 ($215 for returns required to be filed in 2019) or the balance of the tax due on your return, whichever is smaller. This penalty can be avoided by filing the appropriate extension and then filing the return by the extended due date.
Late Payment Penalty – The penalty is generally 1/2% of the balance-due tax not paid by the regular due date. It is charged for each month or part of a month the tax is unpaid. The maximum penalty is 25%. Taxpayers are considered to have “reasonable cause” for the period covered by an automatic extension if at least 90% of their actual tax liability is paid before the regular due date of their return through withholding or estimated tax payments, or with the automatic extension.
Reasonable Cause – The IRS will not assess the late filing penalty or late payment penalty if you can show reasonable cause for not paying on time. To demonstrate reasonable cause, a taxpayer must show they used ordinary business care and prudence in preparing and filing their returns and nevertheless were unable to meet the due date.
To request the penalties be abated, a statement is attached to the finished tax return fully explaining the reason.
What If You Can’t Pay The Balance Due?
If a taxpayer is unable to pay the balance due, the IRS offers two possible solutions: pay by credit card or establish a payment plan.
Pay by Credit Card – Taxpayers can generally pay part or all of their tax liability by using a credit card. The payment is not made through the government directly, but rather through a third party service designated by the IRS. Unlike merchants, the IRS will not pay the discount to the credit card companies. Instead, the taxpayer is charged a fee that is roughly 2% to 2.5% of the tax due (minimum fee about $4.00).
Establish an Installment Payment Plan – Generally, if the amount owed does not exceed $50,000 and the taxpayer is able to pay it within a six-year period, the taxpayer will qualify for an installment agreement. The IRS charges a small fee for setting up the agreement and will continue to charge interest on the unpaid balance. The late payment penalty will also apply, but will be reduced to half the regular amount if the taxpayer qualifies. To be approved for an installment plan, a taxpayer must agree to make full and timely payments, file all future tax returns on time, and pay all future tax balances when due. Any refund from future years will be applied to the outstanding balance. If a taxpayer defaults on the terms of the agreement, the IRS has the option of taking enforcement actions to collect the entire amount owed.
Who Can File an Extension?
In addition to the taxpayer, Attorneys, CPAs, and Enrolled Agents can file an extension for a taxpayer without a power of attorney. Also, anyone with a valid power of attorney, who is in a close personal or business relationship with the taxpayer, can file an extension for the taxpayer.
Options for Receiving Refunds
If you are entitled to a refund and do not have other outstanding liabilities for prior year taxes, past due child support or student loan payments, you have the following options for payment of your refund amount:
Direct Deposit – The refund is deposited into your specified savings or checking account. This process is much faster than having your refund issued by check. Taxpayers who use direct deposit for their federal refunds will be able to divide their refunds and make deposits into a maximum of three different financial accounts.
Issued a Check – If a direct deposit account is not specified, then the refund amount will be paid by a check.
Applied to Subsequent Year – Any portion of your refund can be applied to the next year’s estimated taxes and the balance paid to you by check or direct deposit.
The advice included in this article is not intended or written by this practitioner to be used, and it cannot be used by a practitioner or taxpayer, for the purpose of avoiding penalties that may be imposed on the practitioner or taxpayer.