Extensions are due in two weeks. But what if you can’t get your tax return filed by October 15th? First, it depends on if you owe or are getting a refund. The second question is how long will it take you to file your return?
October 15, 2013 is the last day to timely file a 2012 individual return with an extension. There are no more extensions available. Returns that are filed after that time are considered to be late and any interest or penalties will be calculated from the original due date of April 15, 2013. The amount of the interest and penalties will depend on the amount of the balance due and how long it takes you to get your return filed. By the way, if you didn’t get an extension and haven’t filed your 2012 return, you are already accumulating interest and penalties.
A tax return with a refund is not subject to any interest or penalty for late filing. Penalties and interest are based on the balance due on the return. However, you want to get your return filed as soon as possible to get your money back. If you procrastinate too long you can lose the refund. The tax code gives you three years from the due date of the return before you lose the refund. A 2012 tax return that was due on April 15, 2013 can be filed until April 15, 2016 and the IRS will send a refund. File the return after April 15, 2016 and the IRS keeps the money.
Individual tax returns with a balance due can be subject to interest and two penalties. The current rate of interest is 3% on the balance due and previous interest accrued. The first penalty is the failure to file penalty and was created by someone with a very complicated mind. The late filing penalty starts at 5% a month of the balance due up to a maximum of 25%. But wait! If you are 60 or more days late filing your return, the IRS has a minimum penalty of $135 or 100% of the balance due. Still not complicated enough? The failure to file penalty is reduced by the failure to pay penalty when they are both assessed. Basically, for the first five months after the return is filed, the maximum rate for the two penalties is 5% and not 5.5%. The IRS can also add interest to the failure to file penalty at the current rate (3%). The failure to pay is actually straightforward. The IRS will charge 0.5% of the balance due a month up to a maximum of 25%, no interest, minimum or adjustments.
How does that work in real numbers? A 2010 tax return (due April 15, 2011) with a balance due of $1,500 is filed and everything paid on September 28, 2013. The total the taxpayer will pay is $2211.68. The additional $711.68 is interest and penalties. The regular interest totaled to $121.72 and the interest on the failure to file penalty is $27.46. The late payment penalty is $225.00 and the late filing penalty is $337.50 (25% of the balance due less 5 months of the late pay rate of 0.5 %.)
Next time you want to procrastinate finishing your tax return, just think about the extra you will have to pay for a late return. Even if you are getting a refund, too much procrastination can cost you that money. And remember, if you need to work out a plan with the IRS, they won’t negotiate unless all your tax returns have been filed.