Electronic tax

Late on filing your tax return? Move that key

Many of us commit to tackling our taxes early each year, only to find ourselves in a scenario where instead we hit the deadline and are not ready with our returns. If that’s what’s happening to you right now, you’re definitely in good company. But you don’t want to be late with your return either.

Now, to be fair, if the IRS owes you money, there’s no penalty for being late with your taxes. In this case, being late will delay your refund, but it’s your loss, not the IRS’s, so the agency won’t penalize you for missing the deadline.

It’s when you owe money to the IRS that late filing of a tax return becomes a big problem. And if that’s the situation you think you’re looking at, there’s one key move you need to make as soon as possible.

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Ask for more time

If you don’t expect to be able to file your tax return by April 18, which is this year’s filing deadline, it’s important that you ask the IRS for an extension by that deadline. To do this, you will need to file Form 4868, which you can do electronically.

Once you submit this form, you automatically have an additional six months to complete your tax return. You don’t have to sit and wait for the IRS to approve your application.

In fact, you don’t even need a specific reason to ask the IRS for more time. And you’ll notice that Form 4868 won’t ask for it.

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A man enters the Internal Revenue Service (IRS) building in Washington, DC, U.S., Friday, May 7, 2010. (Andrew Harrer/Bloomberg via Getty Images/Getty Images)

When being late with your taxes can hurt you

If you owe the IRS money starting in 2021 and you don’t file your tax return by April 18, you’ll face a costly penalty for not filing on time. This penalty will be equivalent to 5% of your tax bill for each month or partial month your declaration is late (up to 25% in total).

So, let’s say you owe the IRS $3,000 starting in 2021. If you’re a month late with your tax return, it’ll cost you $150 with no extension in place. Ouch.

To be clear, if you don’t pay your tax bill by April 18, you’ll still have to pay interest and penalties on the amount you owe. A tax extension will not give you more time to pay the IRS – it will only give you more time to file your return. The benefit of this extension, however, is to avoid the 5% penalty that applies when you are late with a return and owe money.

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For context, when you owe the IRS money on a tax bill that isn’t paid by the filing deadline but you are timely with your return or get an extension, you incur a penalty equal to 0.5% of your total outstanding amount per month or partial month you are late (up to 25% in total). On a monthly basis, it’s one-tenth the penalty for being late with a return.

Obviously, it’s best to avoid all penalties if possible. But the one you really what you want to avoid is the non-production penalty, because it could cost you the most.

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Plan ahead for next year

No need to blame yourself for being late in preparing your tax return. At the same time, use this as a lesson to get ahead of the game next year. It’s generally a good idea to try to do your taxes on time, because even if you don’t owe any money, having to wait longer for your tax refund to reach your bank account only hurts you.