US Tax Deadline Approaching: How to Save Money and Avoid Penalties

Filing is Crucial:: Failing to file your tax return on time typically results in much larger penalties than failing to pay on time. The failure-to-file penalty can be 5% of the unpaid taxes for each month or part of a month that a tax return is late, capped at 25%.

Payment Penalty is Separate:: The failure-to-pay penalty is generally 0.5% of your unpaid taxes per month, also capped at 25%. If both penalties apply in the same month, the total penalty is capped at 5% per month.

Extensions Provide More Time to File, Not Pay:: Filing for an extension (e.g., using Form 4868) pushes the filing deadline back, usually by six months. However, this does *not* extend the deadline to pay the taxes you owe. You should estimate your tax liability and pay as much as possible by the original deadline to minimize interest and penalties.

Why this matters?: Ignoring the filing deadline, even if you can't afford to pay, is a costly mistake. Filing on time or getting an extension significantly reduces potential penalties and interest charges, saving you money and preventing further complications with the IRS.

Gather Your Documents: Collect all necessary income statements (W-2s, 1099s), receipts for deductions or credits, and other relevant financial information well before the deadline.

File Electronically: E-filing is generally faster, more accurate, and you get confirmation that the IRS has received your return.

File for an Extension If Needed: If you can't complete your return by the deadline, file for an automatic six-month extension using Form 4868. Remember, this extends the time to *file*, not the time to *pay*.

Pay What You Can: Even if you get an extension or can't pay the full amount, pay as much as possible by the original tax deadline to minimize interest and the failure-to-pay penalty.

Short-Term Payment Plan: You may be granted up to 180 additional days to pay.

Offer in Compromise (OIC): Allows certain taxpayers to resolve their tax liability with the IRS for a lower amount than what they originally owed.

Installment Agreement: Allows you to make monthly payments for up to 72 months. This is often available for taxpayers who owe a combined total of under $50,000, consisting of tax, penalties, and interest.

Prioritize Filing:: Always file your tax return by the deadline or file for an extension, even if you cannot pay the full amount owed.

Understand Extensions:: An extension grants more time to file your return, not more time to pay your taxes.

Minimize Penalties:: Pay as much of your tax liability as possible by the original deadline to reduce interest and failure-to-pay penalties.

Explore Options:: If you cannot pay, contact the IRS or visit their website to learn about payment plans and other arrangements.

Source: Thinking you might not file your tax return? Reconsider, if you want to save money - CNN