Andrew Baron, CFP®
Sometimes life gets the better of us and filing taxes can slip through the cracks. There can be numerous reasons for this to happen—from general procrastination to life-altering catastrophes. Regardless of your reason, anyone may request an automatic 6-month extension. This is an extension of time to file your tax return, not a way to delay paying taxes owed.
Taxpayers requiring additional time to get their paperwork in order need only follow a few simple steps. First, taxpayers need to fill out IRS Tax Form 4868, this is easily found on the IRS website Free File with several services providing free return extensions. Next, taxpayers must estimate their tax liability to the government and pay any additional taxes owed. This will allow taxpayers up until October 15, 2018 to finish and submit their tax return for 2017.
Some taxpayers automatically get additional time to file without filing Form 4868. These include United States citizens and resident aliens who live and work outside of the country. These individuals have until June 17 to file their taxes, however, taxes owed must be paid by April 15. Members of the military in combat zones have 6 months to file and pay after they leave the combat zone. Additionally, taxpayers in parts of Mississippi covered by a federal disaster declaration have until April 30 to file and pay.
It is very important to file your return or request an extension on time, otherwise a failure-to-file penalty will be assessed on the balance owed. This penalty is 5% for each month or partial month a return is delayed to a maximum of 25%. This is significantly worse than the failure-to-pay penalty which is .5% interest on the taxes owed for each month or partial month payment is delayed. In addition to the failure-to-pay penalty, there is 5% interest charged on the balance owed, assessed daily.
For taxpayers looking to delay payments there are a couple of options available. If the total balance owed is $50,000 or less, the IRS will accept a monthly agreement payment plan which may be set up by going to the IRS website Payment Plan. For those struggling to make payments, some may qualify for an offer-in-compromise in which the IRS settles for less than the total amount owed, you can check if you qualify by checking the Pre-Qualifer.
While it is always best to plan ahead, there is still time to get your taxes in order. In expectation of the new tax laws in effect, now would be a great time to sit with an advisor and do some tax planning for 2018.