[ad_1]
- The April 18 tax deadline is near. If you’re not ready, file for an automatic extension to Oct 16.
- Remember, an extension of time is not an extension to pay. So to avoid penalties, include a payment.
- And if you’re self-employed, don’t forget first-quarter estimated payments are due April 18, too.
There are only two weeks left before the April 18 tax deadline, and if you haven’t filed your taxes yet, you’d better hurry up and do it or file an extension to avoid penalties and interest.
For the week ended March 24, less than half the number of Americans the IRS expects to file individual returns had done so. Only about 80.7 million returns had been received, down 0.8% from the same time a year earlier and well below the more than 168 million individual returns the IRS forecast for this season.
That likely means there’ll be many late filers this year – both those who scramble to meet the April 18 midnight deadline or those who should file an extension to Oct. 16.
If you’re in the first camp, the good news is the IRS is processing returns and churning out refunds faster than in 2022. It has so far processed 1.9% more returns compared with the same time last year and issued 2.6% more refunds. The bad news is the average refund is down 11% to $2,903.
But if you need to file an extension, here’s what you need to know.
Deadlines to know:Tax season 2023 officially started: Here are key deadlines to keep in mind
What is an extension?
It’s important to know filing an extension entitles you to an additional six months to file your tax return, but it is not an extension to pay what you owe. You should estimate and pay any owed taxes by your regular deadline to help avoid possible penalties.
An extension request must be filed by the normal April 18 tax deadline. Since it’s automatic as soon as you file it, your new deadline will be Oct. 16. If you owe taxes and don’t file for an extension, the IRS will charge you a steep penalty for failing to file.
If you’re due a refund or not required to file, you won’t be charged a penalty, according to the IRS. However, experts say that could be a risky strategy. If you miscalculated and end up owing money, you could end up paying a big penalty.
Sometimes you just need more time:How long should you wait before filing taxes? Surprise! Later can sometimes be better
Important info:Are you ready to file your taxes? Here’s everything you need to know to file taxes in 2023.
How to file for a tax filing extension?
Filing for an extension is simple and free. You’ll need basic information like name, address, Social Security number, estimated tax liability, and payment if you owe anything. Only those who owe less than $1,000 or paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less, can avoid an underpayment penalty, the IRS says.
Individual tax filers, regardless of income, can use IRS Free File to electronically request an extension. Or you can electronically pay all or part of your estimated income tax due and indicate the payment is for an extension. Payments can be made with Direct Pay using the Electronic Federal Tax Payment System (EFTPS) or with a credit or debit card.
If you prefer to mail in a paper version of form 4868, make sure it’s postmarked no later than April 18.
Tax avoidance goals:Wondering how to avoid taxes? Strategies used by super-rich Americans you can use, too
A refund. Now what?:Here’s how much you can make from investing your tax return every year
Affected by natural disasters? IRS might offer more time to file
Residents in states affected by a natural disaster could get more time to file returns and pay the IRS.
For example, Mississippi storm and tornado victims now have until July 31 to file various federal individual and business tax returns and make tax payments.
Mississippi was hit by tornadoes and severe storms on March 24 and 25.
Residents in other states could see relief as well, including Californians and New Yorkers hit by severe snowstorms and/or flooding this past winter.
Last-minute tax benefits:The tax deadline is a month away. Here are some contributions you can still make – and deduct.
Unemployment and taxes:Laid off last year? What you need to know about filing your tax return after a layoff
What happens if I file taxes late?
If you’re receiving a refund, there’s no penalty, according to the IRS. But if you don’t file a return within three years, usually from the April deadline, you could lose the refund.
If you owe money, you face two penalties:
- Failure to file, which the IRS says will cost “5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty won’t exceed 25% of your unpaid taxes.” However, if your return is more than 60 days late, a minimum penalty kicks in – which is the lesser of $450 or 100% of the tax owed. For example, if you owed $2,000, the penalty would be $100 in the first month, but after the first 60 days, the minimum penalty of $450 would kick in. The penalty would remain at $450 until the fifth month, when the penalty would max out at 25% of the $2,000 in unpaid taxes, or $500.
- Failure to pay, which amounts to 0.5% of your unpaid taxes plus interest but won’t exceed 25% of your unpaid taxes. So, if you owed $1,000, the penalty would be $5 each month, maxing out at $250.
If both penalties are applied in the same month, the failure-to-file penalty will be reduced by the amount of the failure-to-pay penalty applied in that month. For example, instead of a 5% failure-to-file penalty for the month, IRS would apply a 4.5% failure-to-file penalty and a 0.5% failure-to-pay penalty.
On top of those penalties, the IRS charges interest on unpaid balances. The IRS updates the interest rate each quarter, but currently, individuals will be charged 7%.
Inflation relief curveball:IRS: Wait to file your taxes if you received an inflation relief check in 2022
Car credits:Should I buy an EV? Your buying guide on big discounts, tax credits and when to buy.
What if I can’t pay?
File your taxes or file for an extension anyway. As you can see from the examples above, the failure-to-file penalty is much steeper than the failure-to-pay penalty. Also, making a payment, even a partial payment, will help limit penalty and interest charges.
The IRS offers taxpayers a few options:
- Online payment plans that can be applied immediately. Short-term payment plans for 180 days or less for amounts less than $100,000 in combined tax, penalties and interest or long-term payment plans longer than 180 days, paid monthly for amounts less than $50,000 in combined tax, penalties and interest.
- Offers in compromise. If you qualify with a hardship reason, you can settle your debt for less than the full amount you owe.
- Penalty relief for those who followed the law but weren’t able to pay because of factors beyond their control.
Taxing retirement:Social Security benefits are rising, but so are the taxes. Here’s why.
Saving on taxes in retirement:Tax diversification can help you save. Here’s what to consider with your retirement funds.
If you’re self-employed, don’t forget your estimated tax is also due
If you’re self-employed, meaning you don’t receive a W-2 from an employer, and you expect to owe tax at least $1,000 when your tax return is filed, your first-quarter estimated taxes for 2023 are due on April 18, too.
If you underpay this, you may be charged a penalty. You also may be charged a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return, the IRS warns.
You can use the IRS worksheet to determine how much you owe.
More of your 2022 tax season questions answered
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
Contributing: Brett Molina. Follow Brett Molina on Twitter: @brettmolina23 or email him at Bmolina@usatoday.com
[ad_2]
Source link