All things considered, missing an income tax return filing deadline is not the end of the world. You can still file your annual tax returns after the due date has passed. But beware, there is a right way and a wrong way to do this. This post covers some common tax mistakes you should avoid if you’re filing your taxes late.
1. Not taking any action
If you know you won’t be able to file your tax return on time, you can let the IRS know and they‘ll accept that. All you have to do is file Form 4868 and request for a tax extension to get more time. But keep in mind that you will have to ask for that extension before the tax-filing deadline is over.
If you don’t ask for an extension before the deadline, you will be charged a late-filing fee of 5% on the amount you’re supposed to pay for the months your filing is late. The highest penalty you can get is 25% of the total amount due.
2. Thinking only unpaid tax will be due
Typically, paying taxes late means you’ll be paying more. This is because interest will accrue on any outstanding balance after the tax-filing deadline has passed, even if you ask for an extension and get one.
The IRS may also see fit to charge a late-payment fee, which is generally 0.5% per month of the outstanding tax (the highest fine is 25%). You may be able to get lenience if you’ve already paid 90% of your actual tax bill by the deadline and you pay the remaining amount when you file your returns.
A good rule of thumb to remember is that if your taxes are due, you should always strive to pay as much as you can before you ask for an extension.
3. Not knowing extension rules
In certain circumstances, the IRS will grant you an extension without you even asking for it. Not being familiar with the rules could mean you’ll try jumping through hoops you don’t have to, costing you time and confusing the situation. Here are certain exceptions that the IRS makes:
- U.S. citizens or residents who are living and working abroad on the tax-filing deadline are given extra time to file and pay taxes without requesting an extension.
- People who have been affected by particular natural disasters are automatically given more time too.
- Certain military personnel are also given more time by default, depending on their location and position.
4. Assuming that an extension means 6 months in every case
Applying for a standard extension can get you an additional six months to file your taxes, around the middle of October. But if you’re eligible for an automatic extension, assuming the same rule will apply to you is one of the late-filing tax mistakes to be careful about.
- If you’re living out of the country, you only get two additional months to file.
- The extension for people affected by natural disasters varies.
- Military personnel may be eligible to get more than six months extra in certain situations.
5. Missing your extension deadline
- If you end up missing your extension deadline too, then the IRS can slap you with that 5% fine for late filing.
- If you’ve missed the deadline by over 60 days, you’ll have to pay either $435 or the same amount as what you still owe, whichever amount is smaller. Keep in mind that this penalty is in addition to what you already owe in taxes.
- It’s possible that the IRS might show you some lenience. You may get out of paying the penalty if you can produce a well-written explanation for missing the deadline while filing your return.
6. Being afraid of the IRS is one of the common tax mistakes
You shouldn’t risk making big mistakes while filing your taxes or forgetting to add important deductions just because you’re in a rush to meet the deadline. The IRS won’t blacklist you for asking for an extension. You may not believe it but filing late is pretty common. In fact, extensions are the norm for many investors who never get their K-1s. There’s no shame in filing your taxes late, all you need to do is get an extension.