Plus, you have to 1) be good at and 2) enjoy math to figure all those penalty numbers out! Keep in mind this penalty is on top of any other interest charges or late-payment penalties that you are assessed.
If you file later than 60 days after the April 18 deadline, the minimum penalty rises to the smaller of $135 or 100 percent of the unpaid tax. Even if you have a relatively small unpaid tax bill, you will still be subject to this penalty if you don’t file on time. The failure-to-file penalty is 5 percent per month or partial month, up to a maximum of 25 percent of what is owed. If you do not file a return or apply for an extension by the April 18 deadline subject to a failure-to-file penalty, which is significantly more costly than the failure-to-pay penalty. While Option A is obviously more desirable than Option B, filing an extension and paying later is much better than not filing a tax return at all. Reduce your pain: It’s better to apply for an extension than to do nothing at all Usually “reasonable cause” means catastrophic occurrences such as the death of an immediate family member, a major illness, or if your tax documentation was destroyed in a fire or some other disastrous event. You may also face a late-payment penalty charge, unless you can prove that you have a reasonable cause for not paying on time. The IRS interest rate on underpayments changes quarterly, but it is usually around 3 percent-adding to your financial burden. You will pay interest on any tax owed that is not paid by April 18 until it is paid. You don’t want to choose this option unless you absolutely have to. Option B: File an extension and pay later. That way you will avoid the late-payment penalty and failure-to-file penalty. **This may be the best option if you have enough information to estimate the taxes you owe, but you are simply missing a piece of documentation or need time to get your act, aka your documentation, together.Īs a freelance business owner, you should be prepared to pay estimated taxes anyway, right? So if missing paperwork is holding you up from submitting your tax return, then filing for an extension makes sense. **Option A: File an extension and pay estimated taxes now. Which option should you choose? Let’s take a closer look at each one: You must either: a) estimate what you owe and pay it now or b) pay later and be subject to interest on the tax you owe and, potentially, late-payment penalties. 17), it doesn’t remove the obligation of paying your taxes on time. While filing an extension buys you six months (making your tax return due on Oct. Be sure to check the specific requirements for filing extensions in the states in which you live and do business. In addition to your federal taxes, you may be required to make separate extension filings for your state tax or other returns specific to the state(s) in which you have a tax nexus. In all seriousness, if you are not submitting your taxes by Tax Day, then you should consider filing Form 4868, the Application for an Automatic Extension of Time, with the IRS. After all, you know that the April 18 deadline is approaching faster than Kanye can spend 53 million dollars. But the agency’s website does state that “people who wait too long to file and claim a refund, risk losing it altogether.If you haven’t filed your federal income tax return yet, then panic.
The IRS does not explicitly state that taxpayers who overpaid will forfeit their refunds if they don’t file by the Oct. Even if you don’t normally file, the IRS urges you either to file a return or use the Child Tax Credit Non-filer Sign-up Tool to give the agency the information it needs to process the payments. It’s not too late for anyone who still hasn’t received the first two rounds of stimulus payments, according to the IRS, but time is quickly running out. Waiting Could Cost You Your Stimulus Payments - and Maybe Even Your Refund
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