Editors' pick: Originally published April 13.
Consumers receive a rare reprieve this year to file their taxes later than usual because of two federal and state holidays.
The federal tax filing deadline was extended to April 18, because the District of Columbia celebrates Emancipation Day, which commemorates the signing of the Compensated Emancipation Act that was signed by President Abraham Lincoln on April 16, 1862.
The residents of Massachusetts and Maine have an even longer extension and do not have to file their federal returns until April 19, because the two states celebrate Patriots' Day, which memorializes the battles of Concord and Lexington that were fought near Boston in 1775.
But even though the dates have been pushed back, taxpayers who are facing the prospect of missing the deadline should start the process by filing an extension through form 4868. While the extension moves the filing until October 17, any payments must be made by April 18 or consumers face paying penalties and interest, increasing the amount they already owe to Uncle Sam.
“There is almost no reason to file your tax return late,” said John Petosa, an accounting practice professor at Syracuse University’s Martin J. Whitman School of Management in New York. “The form is not hard to complete. You simply need an estimate of your income, the estimated tax, what you have paid in and how much you are going to pay with the extension so that you are paid up for 2015.”
When You File Late
The penalties assessed by the IRS are plentiful if you file late, and there can even be criminal consequences.
“It is an important point to emphasize that not being able to pay your taxes does not carry criminal penalties; however, failing to file your return does carry criminal penalties,” he said.
“If you are owed a refund back and you file on April 19, you will not be subject to any penalties, but you will also not receive any interest for giving the U.S. Treasury the use of your money for the extra time,” Petosa added.
If you live in a state where you have to file state taxes and miss the deadline, plan for paying additional late payment and late filing penalties in addition to the federal fees, said Grafton “Cap” Willey, a managing director of CBIZ MHM, a Cleveland based accounting and professional services provider.
Taxpayers who file a few days late and do not owe money may be exempt from penalties, since they are typically assessed on the balances owed, he said. Filing electronically means the date and time of the return can be easily identified compared to paper returns, which are “technically dated when they are postmarked by the post office,” Willey said.
“With the vast number of returns that are filed at the deadline, it is possible that a return filed a day late would slip through the cracks and be deemed to have been filed timely," he said. "No guarantee of that, but it is possible.”
Avoid waiting until after the deadline has passed to file because every return has different consequences.
“It doesn’t matter how late you are,” said Jonathan Barsade, CEO of Exactor, Wynnewood, Pa.-based sales tax compliance software company. “We have seen a situation where a filing deadline was missed by 15 minutes because a state system was inaccessible. The state said that the tax payer should have and not waited for the last minute.”
Fees Adds Up Quickly
Even if you believe it is likely that you will file your taxes on time, filing an extension this week will help you hedge against any issues which may arise, said Jessie Seaman, a managing licensed tax professional at Tax Defense Network, a Jacksonville, Fla.-based tax resolution company.
Missing the deadline without filing for an extension means you are likely facing a failure-to-file penalty which is 5% of unpaid taxes each month, not to exceed 25%, said Mark Steber, chief tax officer at Jackson Hewitt Tax Service, a Parsippany, N.J.-based tax prep company.
Procrastinators who file 60 days or longer after the due date should plan to pay a minimum penalty of $135 or 100% of the unpaid tax, whichever is lower.
“Coupled with additional fees for any tax liability, this can quickly inflate your total balance,” Seaman said.
The IRS can also assess a failure-to-pay penalty which starts accruing the day after taxes are due.
“This penalty is much less costly and starts at 0.5% of unpaid taxes each month, not to exceed 25%,” Steber said.
Delinquent tax bills can lead to “aggressive” collection efforts by the IRS, including wage garnishment, bank levies, federal tax liens and possible seizure of assets, said Seaman.
“These types of actions can be financially devastating and difficult to resolve without the help of a professional,” she said.
The IRS offers installment plans if you can not make your payment in one lump sum and also allows you to pay with a credit card, although the IRS charges a convenience fee of 1.8% to 3.95% depending on the type of card, Steber said.
How to Find Help
Free federal filing is plentiful, ranging from the IRS to private tax preparation and software companies such as TaxAct and TurboTax. Some state returns are also free.
Finding a tax professional now might be more of a challenge, so consider filing it yourself, said Seaman.
“Putting off filing your tax return because you do not want to handle it on your own is ill-advised,” she said. “Unfiled returns and unpaid liabilities can draw the attention of the IRS, who can request an audit or assess a tax debt against you.”
Taxpayers with simple returns where their income and deductions are straightforward should file their own taxes online.
“Our free federal and free state offering is still available for filers with simple returns to help taxpayers file easily,” said JoAnn Kintzel, president of TaxAct, the Cedar Rapids, Iowa-based tax software provider.