Around the tax deadline, people will call and ask the following questions:
- Should I file if I cannot pay the tax due on the return?
- Should I file if I don’t have all of my tax information?
- Should I file my tax return if did not pay enough taxes throughout the year?
- Should I file if the person for whom I work didn’t take out any taxes?
You should always timely file no matter what. Not timely filing a tax return is reckless, financially devastating, and exposes you to criminal prosecution. If you owe money and don’t file, then you will cost yourself a lot of money in penalties and interest. If you owe taxes and file your return late, then the IRS will assess the failure to file penalty. The failure to file penalty is a penalty based on the amount of tax owed that accrues at 5% per each month that the return is late for a maximum of 25%.
Filing a Tax Extension
If you don’t have all of the information necessary to file your tax return or you owe money, then file a tax extension. An extension to file your tax return is not an extension to pay; however, it will avoid the onerous failure to file penalty discussed above. An extension of time to file provides you an additional six months to file by extending the due date of the tax return until October 15, 2015.
Are you worried about completing tax forms? Don’t be. All that the Extension of Time to File requires is your name and social security number. The extension to file also requires that you estimate your 2014 liability, total 2014 payments, balance due, and the amount that you’re paying. If you cannot figure out your liability, then don’t worry. The point to filing a tax extension is to avoid the failure to file penalty if you owe taxes. Do your best to estimate the liability and it is okay to write in a zero liability if you cannot figure it out. The extension to file your tax return is not signed under the penalties of perjury.
In order to file an extension, google “Application for Automatic Time to File” or “Form 4868,” complete the form, and send it certified return receipt to the address in the directions. Of course, you can always ask your CPA to request an extension.
If you don’t file an extension by April 15, 2015, then you missed the extension deadline.
An Extension of Time to File is Not an Extension of Time to Pay
This is an important concept. You are asking the government to extend the time to file to address any outstanding issues that you are having completing the return. The extension of time to file is not an extension of time to pay. Therefore, if you can pay by the tax deadline date, you should include full payment or a partial payment with the Application for Automatic Time to File (Form 4868).
Importantly, check your local state rules on filing an extension. Most states grant an automatic extension if you file a federal extension, but it is important to check the precise rules. For example, in the State of New Jersey, the Division of Taxation will grant an extension of time to file automatically upon the filing of a federal extension, but the Division of Taxation requires that 80% of the taxes owed with the extension. If at the extended filing deadline 80% of the taxes were not paid by the original April 15th deadline, then New Jersey retroactively denies the extension. Regardless, the IRS extension of time to file is valid no matter how much taxes were paid.
I Filed My Federal Extension Now What?
Now that the pressures of the tax deadline are behind you, you can work on addressing the outstanding issues that were causing you filing problems.
If you haven’t received all of your tax information, then contact your employer, banks, contractors, and inform them that you need your tax information to file your tax return. If you wait until August 2015, the time when the IRS’s system is updated, you can go on the IRS’s website and order a wage and income transcript. The wage and income transcript is a printed report of all third party payment documentation (1099s, W-2s, 1098s, etc.). You can utilize the information to file timely in October or sooner.
If you didn’t have the financial wherewithal to pay the taxes due on April 15th, then you can start to make voluntary payments by designating payments to the 2014 tax year. Keep in mind that interest is accruing, currently 3% compounded daily, and the failure to pay penalty will be triggered.
The failure to pay penalty is assessed at .5% per month up to a maximum of 25% for the late payment of tax. Therefore, if you have any money available, even if the amount is less than what is reported, then submit the funds with your federal extension. That way, you reduce the exposure to the failure to pay penalty which is based on the amount of back taxes owed.
If you owe money in 2014, then you must figure out why you owe money. If your employer is under withholding, then you must adjust your W-4 to claim less exemptions. That way, you won’t owe any money during the 2015 tax year. If you are self-employed, then you must begin to make adequate estimated tax payments.
Importantly, you must file your tax return at the extension deadline no matter what is owed on the return. If you cannot pay at the deadline, then you can request for additional time to pay, ask for an IRS installment agreement, make an application for an offer in compromise, the IRS tax settlement program, or request that the taxes be placed in currently not collectible. The latter is an IRS forbearance program whereby the IRS puts a hold on collections for a period of time.
Still require help? Contact the Law Offices of Todd S. Unger, Esq.
Todd S. Unger, Esq. is a tax attorney whose practice is focused solely on IRS and State Tax Representation. If you are having difficulty filing your 2014 tax return or require assistance with compliance in the 2015 tax year, then contact the Law Offices of Todd S. Unger, Esq. today (877) 544-4743.