Spring has sprung and with that brings playoff season. The longest game in the Nashville Predators history ended with a game winning shot during triple overtime to even the series. Despite goalie interference, loose pucks, and paralyzing penalties, the Predators never took their foot off of the gas and prevailed. Even after this extended hockey marathon, there are few things more exciting than OT during the Stanley Cup Playoffs… especially for hockey fans!
The same may not be applicable to filing your tax return in overtime. The IRS 2016 deadline of April 18, 2016 is also history and for some filers, avoiding penalties and interest may be challenging. If you needed more time to prepare and file your tax return, here a couple of “goals” to keep in mind.
Fortunately, the IRS made filing an extension pretty easy. In fact, an IRS federal tax extension is technically automatic by filling out IRS Form 4868 on or before tax day. One benefit of filing an extension is that it scores you an additional six months to file your taxes allowing for more time and less stress. Keep in mind that an extension does not extend the deadline for your tax payment, but does avoid costly failure-to-file penalties. Whether or not you are entitled to a refund before or after the regular deadline, any tax still owed may be subject to penalties and interest charges after April 18th.
In order to file an extension, you will need to submit your name, address, social security number, an estimate of your tax liability, and any payment you are paying with the extension. Even if you can’t pay the entire amount, pay as much as you can. Tax penalties and interest are calculated on the amount you owe and the length of time it takes you to pay it. Late payment charges are 0.5% of the unpaid tax balance per month (or part of a month) the return is late, up to a maximum of 25%.
Some penalties may be waived if you can show reasonable cause for paying late. Criteria for relief from penalties generally falls into separate categories such as reasonable cause, statutory exceptions, or correction of an IRS error. The IRS will consider death, serious illness, fire, natural disaster, or even inability to obtain records as reasons it might reduce a penalty. Reasonable cause requires extraordinary circumstances and should include a detailed letter describing the cause and supporting documentation of the underlying facts.
Even if you received an extension of time to file your return, all late or under-paying filers will be charged interest. Although not considered a penalty, interest in most cases is not waived and the rate is compounded daily and adjusted quarterly. Interest is calculated on the amount of unpaid balances and associated penalties starting from the due date of the return until final payment is made.
The sooner you can get out of the penalty and interest box, the stronger your advantage!
The IRS Penalty and Interest Handbook is available to taxpayers on the IRS website at: https://www.irs.gov/irm/part20/
May 6, 2016
By Susan Amsler,
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