Apr 05, 2018 | Taxes

5 moves to make if you can’t meet the tax deadline

The situation

Usually, I put off my taxes to the last minute, but I’ve always pulled it out at the end and gotten my taxes filed under the wire. This year, though, I’m moving the first week of April. I won’t even have my boxes unpacked yet, much less be able to lay hands on all my paperwork. Does it really matter if I file after the IRS deadline?

—Patrick, Lawrence, Kan.

The solution

The trouble with waiting until the last minute, as you’ve discovered, is that you leave yourself no wiggle room if something comes up. In this case, your impending move has eaten up the time when you usually scramble to file your taxes. I’ll save the lecture, and instead refer you to my advice on how to be more organized next year so that Tax Day doesn’t stalk you like a cheetah slinking after a gazelle on the savanna.

So that takes care of next year. But what are your options for this year? Here are five points to keep in mind if you’re butting up against the IRS deadline. (As a reminder, this year that deadline is April 17. That’s because April 15 falls on a Sunday, and the District of Columbia celebrates Emancipation Day on April 16.)

1. Don’t file late if you owe. To answer your question, yes, it does matter if you file after the IRS deadline. If you owe taxes, you’ll be charged a penalty of 0.5% for every month or fraction of a month—even a single day—that you’re late, up to a total of 25%. On top of that, you’ll be charged interest on the amount you owe. If you don’t file for an extension (see point No. 3 below for more about this), you are also looking at a failure-to-file penalty of 5% per month on the unpaid balance, plus interest. (If you owe both penalties, however, the most you’ll be assessed in a single month is 5%.)

   Don’t be tempted to file late because you don’t have the money to pay. The penalties for failure to file are tougher than for failure to pay. Pay as much of what you owe as you can, and contact the IRS about your plans to pay the rest. The IRS might help you set up an installment plan for your unpaid tax balance and reduce the penalty. (If you’ve been the victim of a hurricane, a flood, or some other extenuating circumstance, you might be exempted from penalties. Unfortunately, profound disorganization isn’t the kind of natural disaster the IRS has in mind.)

2. File on time even if you expect a refund. If you’re entitled to a refund, the truth is that the IRS won’t charge you a penalty for filing late. Why? Because you’re letting the government use your money interest-free. That right there should be incentive to get your taxes done and get that money back. If you don’t file within three years of the due date, you lose your refund altogether. In fact, roughly a million taxpayers who did not file a 2014 federal return might lose out on unclaimed refunds totaling about $1.1 billion if they don’t file by April 17, 2018. Need further incentive to file? If you want to take out a mortgage or other loan, or apply for college financial aid, you’ll probably need to show your tax returns.
3. File an extension. Okay, so let’s say you just don’t have the time to prepare your taxes by the deadline. Not gonna happen. You can file an extension with the IRS that will automatically give you an extra six months to get your return in. You don’t have to give a reason. You just fill out IRS Form 4868. This extension allows you to avoid the failure-to-file penalty, provided you do file before the six months is up in mid-October. But there’s a catch…
4. You can’t extend the deadline for paying the taxes you owe. If you file an extension, the IRS still expects you to pay at least 90% of what you’ll owe for the tax year. How are you supposed to know how much this is (or if you owe at all) without actually doing your taxes? Talk about a Catch-22. In actuality, it’s possible to figure this out. If your income and deductions this year are roughly similar to last year’s, then looking at your previous return will give a fairly good idea of the tax you’ll owe. You can also use the IRS withholding calculator. Though it’s set up for the current tax year (2018) rather than for 2017, if you answer the questions, it should give you a solid estimate of your taxes. If you’re at all in doubt, overpay. This way you’ll avoid penalties, and you can have the overpayment refunded to you once you file your tax return.
5. Don’t forget state taxes. Unless you live in one of the handful of states that doesn’t impose an income tax, you’ll probably also need to file an extension for your state taxes. Be sure to pay the tax you expect to owe by the deadline, or you may face additional state penalties.

Good luck this year. And when you unpack all those boxes after your move, be sure you set up a file for next year’s tax documents, so you won’t have to hit the panic button again next April.