It’s April! While for some this month conjures visions of colorful flowers, the Final Four, the Long Beach Grand Prix or Spring Break, for most Americans it brings that sinking feeling, that annual anxiety, brought on by dreaded “Tax Time.”
April 15 is just around the corner. While you might have filed your tax returns already, it is certain that not all your clients, family and friends have done so.
Here are a few tips as the due date approaches.
The first bit of good news is that the due date this year is April 18 due to the Emancipation Day holiday in the District of Columbia. Taxpayers in Maine or Massachusetts have until April 19 due to the Patriots’ Day holiday in those states. This gives everyone one additional weekend to work on their taxes.
Depending on your situation, failure to make the April 18/19 deadline will have varying consequences. The two primary considerations are:
- Have you already paid sufficient amounts to cover your tax liability? This would include W-2 withholdings and estimated tax payments (“quarterlies”).
- Are you required to file a tax return at all? This would be based on your income level and type of income for 2021.
If you know you are required to file a tax return and you expect to owe taxes, the most important thing to know about the April deadline is that the worst move you can make is to ignore it and do nothing. I have worked with many clients over the years who chose not to file their tax return on time (or at all) simply because they knew they did not have the money to pay the taxes due. They were unaware that the penalty for not filing is much higher than the penalty for not paying on time.
It is critical to understand that if you file your 2021 tax return late after April 18/19, you will face penalties for late filing as well as late payment and interest on any late payments. The penalty for late filing is 5 percent of the unpaid balance, per month, until your return is filed, to a maximum of 25 percent. The late payment penalty is 0.5 percent per month until the balance is paid in full. This also has a cap of 25 percent (Internal Revenue Code Section 6651). The current interest rate on underpayments of tax for taxpayers other than corporations is 4.0 percent.
To avoid this harsh result, be sure to file a request for extension (IRS Form 4868) no later than the April due date. As long as you file your tax return no later than October 17, 2022, you will avoid the late-filing penalty. However, the extension does not extend the due date for payment of your taxes, so the late-payment penalty and interest will continue to accrue on any unpaid balance until paid in full. To get the extra time for filing, the IRS requires you to estimate your 2021 tax liability using the information available to you, enter your total tax liability on the form and file the form by the regular due date of your return.
The second bit of good news is that the IRS has made it very easy to submit a request for extension of time to file your tax return. Payment has also been made easy with the electronic payment options available on the website. The request for extension of time to file your return can be made in a variety of ways.
- File Form 4868 electronically by accessing IRS e-file using your tax software or by using a tax professional who uses e-file.
- File a paper Form 4868. Enclosing payment of your estimate of tax due is optional (but recommended to minimize penalties and interest).
- Make a payment of some or all of your estimated tax due using IRS’ electronic Direct Pay online system (found at www.irs.gov). By indicating the payment is for “Extension” you do not have to file Form 4868. This can be done online or by phone, using your bank account or credit card (fees may apply). The IRS will automatically process the extension and provide a confirmation number for your records.
If you are expecting a refund and you file late, the late-filing penalty will not apply. Obviously, the later you file, the later you receive your refund. Please be aware, also, the time for claiming a tax refund is limited. In cases where a federal income tax return was not filed, the law provides most taxpayers with a three-year window of opportunity to claim a tax refund. If they do not file a tax return within three years, the money becomes the property of the U.S. Treasury. Taxpayers have until April 18, 2022, to file their 2018 tax return and get their refund. IRS recently announced over a million taxpayers didn’t file their 2018 tax returns, leaving $1.5 billion in unclaimed refund money. This deadline cannot be extended.
For taxpayers with incomes below the level that would trigger a filing requirement there may still be good reasons to file a tax return, other than just to get a refund of withheld tax. This topic will be the subject of a separate post.
My recommendation is to file your income tax returns on time, if possible. If you need more time, be sure to submit a request for extension on or before the due date, with or without payment. Then enjoy the rest of April!
Disclaimer: The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information and content are for general informational purposes only. Individuals’ cicumstances differ; readers of this article should contact their attorney and/or financial professional to obtain advice with respect to any particular legal matter.
Darren Larsen is an attorney specializing in tax controversies, bankruptcy and estate planning, and the national secretary of WIFS.