Did you know that this year the deadline for filing U.S. Tax Form 1040 is Tuesday, April 17? Americans have two additional days because April 15th falls on a Sunday and April 16th is a legal holiday in the District of Columbia. Great news, but what happens if I miss the deadline? Find out from GNN’s featured tax expert, Julian Block…
If you miss the deadline you could get nicked for a sizable, nondeductible penalty. In most cases, the penalty is 5 percent of the balance due (the amount that remains unpaid after subtractions for taxes previously paid through withholdings from wages during 2006 and payments of estimated payments) for each month, or portion of a month, that a 1040 is late.
The maximum penalty is 25 percent of the balance due. The Internal Revenue Service will waive a late-filing penalty if you are able to show "reasonable cause" for your tardiness — destruction of your records by flood or fire, for instance.
What if you do not have sufficient cash on hand to pay the balance due at filing time?
Even if you could prove it, this is not a reasonable cause that relieves you of the penalty.
What if I need additional time to complete my return or to avoid the late-filing penalty?
It’s easy to obtain a six-month automatic filing extension, moving the deadline back to Monday, Oct 15. Submit Form 4868 by April 17 to file for an extension. You can use a simple-to-complete application available from the IRS online, You can file it by phone (call toll-free 1-888-796-1074), or you can do it with computer tax preparation software, or through a tax professional.
NOTE ABOUT PAYMENTS
Form 4868 only extends the time to turn in Form 1040, not the time to pay any taxes owed. While the Internal Revenue does not require payment by April 17 of the tax you estimate as due, failing to do so means you will owe nondeductible interest, which runs until payment of the tax. It is immaterial that you had a good reason for not paying on time; you will still owe interest. Also, the agency might assess a nondeductible late-payment penalty on the unpaid tax. When you finally file your return, be sure to enter any extension-related payment on Line 69 of Form 1040 as "amount paid with request for extension to file."
The IRS relaxes the rules for those who are unable to fully pay the balance due by April 17. Usually, it is easy to arrange for partial payments in installments by submission of Form 9465 (Installment Agreement Request), found online here. It allows you to request a monthly payment plan and specify the amounts you can pay each month and the monthly due date.
STATE TAX RETURNS
Some states accept Form 4868 for extending their due date; some require their own extension forms. Check the rules of the state in which you have to file returns, including the penalties for any underpayments of taxes.
Julian Block, an attorney in Larchmont, N.Y., has been cited as "a leading tax professional" (New York Times) and "an accomplished writer on taxes" (Wall Street Journal). This article is excerpted from "Tax Tips For Small Businesses: Savvy Ways For Writers, Photographers, Artists And Other Freelancers To Trim Taxes To The Legal Minimum," praised by law professor James Edward Maule of Villanova University as "An easy-to-read and well-organized explanation of the tax rules. Writers, photographers and artists would be well advised to buy this book." For more of his articles and to order his books, visit his Web site. Copyright 2007 Julian Block. All rights reserved.