This year’s federal tax filing deadline is April 18, 2011 (today), with April 15th still being the tax filing deadline for state income tax returns. The federal deadline was extended to today because Emancipation Day was moved to April 15th (last Friday) instead of Saturday, April 16th. Therefore, because of this local holiday, the IRS moved the tax filing deadline to today. So what happens if you miss the April 18th federal tax deadline?
Let’s assume there are three scenarios, all involving you not filing your Federal tax return by today. In the first scenario, you owe taxes and you file for a tax extension. In the second, you owe taxes, but you do not file your return or a tax extension by today’s deadline. In the third, you do not owe taxes, but you don’t file a tax return or extension by today. Now let’s consider the intricacies and consequences of each situation.
Scenario 1: You Owe Taxes and You File for a Tax Extension
If you cannot make the Federal tax filing deadline today – for whatever reason – you can file for a tax extension. The tax extension request must be submitted by today though. The primary benefit of filing for a tax extension is to ensure that you aren’t hit with the failure-to-file penalty. The failure-to-file penalty is 5% per month (up to 25% total) of any unpaid tax balance you have. Even if you cannot pay your taxes, you should still file for a tax extension because the failure-to-pay penalty is much lower (only .5% per month or partial month) on the unpaid balance than the failure-to-file penalty. A tax extension will give you a new deadline of October 17th, 2011 (with exceptions if you are outside the country), and there are a few different ways to request one:
- Print and Mail Form 4868 – Form 4868, or the “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return” can be accessed from the IRS website, printed, completed and postmarked by April 18th, 2011.
- E-File the Tax Extension – Using either tax software or your professional tax preparer, you can file form 4868 electronically by using IRS e-file.
- Pay Some or All of What You Owe – If you pay part or some of what you owe using a debit card or credit card (not recommended with a credit card if you are already having financial trouble), then you will automatically receive a tax extension and do not need to file form 4868.
Some Guidance: To avoid the IRS failure-to-pay penalty, the IRS must receive 90% of what you owe them for 2010 by today or through a check in an envelope postmarked by today. Therefore, determine what you have already paid the IRS through withholding and estimated income tax payments; if that amount is at least 90%, then you are fine. If it is not at least 90%, you should submit a payment with your tax filing extension. Remember that even if the IRS has 90% of what you owe by today, you will still incur interest charges – which, unfortunately, are compounded daily – until you pay off the remaining amount that you owe, so it is always wise to pay your entire tax liability with your filing extension. In some cases, even if you do not pay 90%, if you can prove there is reasonable cause for you not paying, you may be able to avoid penalties.
Scenario 2: You Owe Taxes and Do Not File a Tax Extension
If you realize today that you owe the IRS taxes, but you still decide not to file a return, or for a tax extension, you will incur not only the failure-to-file penalty but also the failure-to-pay penalty, in addition to any interest owed on your tax balance. When both tax penalties intersect in the same month, the failure-to-file penalty is reduced by the failure-to-pay penalty. In essence, for the first five months, you will incur the same penalty percentage as if you just failed to file.
Some Guidance: It is always a good idea to file a tax return by the deadline, or, at a minimum, file for a tax extension. There is no logical reason to incur the failure-to-file penalty, regardless of your situation.
Scenario 3: You Do Not Owe Taxes, and You Do Not File a Return or Extension Today
It is a rarely discussed but important issue. If you do not owe any taxes, you will incur neither the failure-to-file penalty nor the failure-to-file penalty; however, you want to be 100% positive that you do not owe any taxes; otherwise, the IRS will eventually send you a notice. Moreover, if you cannot file by today and you do not owe any taxes, you could still file for an extension just to be safe–unless of course, you did not make enough to be required to file at all.
Some Guidance: Even if you do not owe the IRS anything, you should still eventually file a tax return for a couple of reasons (unless of course, again, you do not make enough to be required to file). First, any refund that is owed to you will not be paid until you file, and if you do not file within three years, the IRS keeps your refund. Again, understand that some tax credits are refundable, meaning that you can get money back even if you had no tax liabilities. Second, the willful failure to file a tax return is a crime that carries one year in jail or fine of up to $25k, although rarely enforced. Without a doubt, you should always file a tax return because there are a long list of additional consequences not discussed here that you may face if you do not.