Income Tax Extension Option Offers Potential Relief, Costs for Late Filers
Each year, many millions of taxpayers wait until, or after, the April 15 deadline to file their state and federal income tax returns. Whether as a result of procrastination, delayed receipt of necessary paperwork, or another reason, more than 10 million Americans will file for an extension for submitting their returns, that extra six months’ time may also come at a price if the taxpayers owes the government money and does not pay the debt by the regular April deadline.
Filing for an extension is quite simple. Federal Form 4868 is less than one page in length (it’s about the size of a business envelope) and offers filers an automatic six-month extension, giving them until Oct. 15 to submit their federal income tax returns. Other taxpayers receive extra time without having to file any forms. These include: military service members serving in Afghanistan or other combat zones (who get an extra 180 days after they leave the combat zone to file and pay,) and people certain areas affected by natural disasters (in 2013, this includes parts of Mississippi, whose residents have until the end of April to file and pay.)
While government freely gives extensions to taxpayers, the financial aspect of paying one’s taxes can be less forgiving. Most late filers who wait to pay any tax obligation that is ultimately due will find the privilege costly. The Internal Revenue Service will impose interest on the amount you owed and did not pay by April 15, and that interest continues to accrue until you make your payment.
Furthermore, unless you provide “reasonable cause” for not paying your full obligation by the regular deadline, the IRS may also impose a late payment penalty against you. The IRS assesses a penalty of 0.5% per month for failing to pay on time, with that rate climbing to as much as 25% of what you owe. On top of that penalty, late-paying taxpayers owe interest on the unpaid amount. The rate is slightly more than 3% and applies to both the tax debt and applicable penalties. The IRS adjusts this interest rate once every quarter. Paying late still beats not paying, though. Failure-to-pay penalties are 5% per month. A few late filers will evade the late payment penalty this year. The protracted debate, and last-moment Congressional action leading up to the passage of the American Taxpayer Relief Act triggered delays in 31 forms taxpayers might need with their federal returns, including those regarding education credits, residential energy credits and depreciation of property, among others. Taxpayers submitting any of those forms will not owe the late payment penalty this year. Regardless of the penalty, though, taxpayers “must still make a good faith effort to properly estimate and pay the tax due with the extension request,” Mark Luscombe, a principal analyst for CCH, told USA Today.
Businesses face a large and ever-changing number of obligations regarding tax compliance, including sales taxes. To make certain your business is properly collecting all taxes, consult the experienced tax attorneys at Samuel C. Berger, P.C. and CPAs at S.C. Berger, P.C., who have a long background of helping businesses throughout New York and New Jersey. To consult our attorneys and CPAs, contact us online or call (201) 587-1500 or (212) 380-8117.
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