Updated: Feb 1
Well skippidy-dippidy-do, we are finally to the first due date for filing Individual Income Tax returns. May 15th. (Actually May 17th since the 15th falls on a weekend.) The flowers are blooming, face masks are falling and we are close to summer starting. There’s a spring in my step!
But wait! If you haven’t either filed your 2020 return or at least filed an extension, you’re running out of time.
So, what is the whole point of filing extensions if the IRS has to grant you one if you ask for it? Great question. It has to do with government cash flow. Their budget is set to collect most of the 2020 tax by the April 15th (May 17th this year only) deadline. By forcing all taxpayers to at least sit down and estimate how much tax they will owe and pay it along with the extension, the government gets most of their money by that date.
What happens if you don’t pay in at least 90% of the actual tax you owe for 2020? Underpayment Penalty. 5% of the balance owed per month to a maximum of 25%. Let me give you an example. Let’s say you end up owing $2,000 for 2020. You paid $1,000 with your extension, leaving a balance still to pay when you file of $1,000. The first calculation is, did you pay at least 90% of the $2,000 owed? Answer, no. You only paid 50%. Thus the underpayment penalty starts running on the remaining $1,000. Let’s further assume you don’t end up actually filing and paying the balance due, until the October 15th extended deadline. You will now owe $1,250 to the IRS. (The original $1,000 plus the maximum 25% underpayment penalty of $250.) Ouch! Now you can appreciate how important it is to have a good idea of the balance you owe by April 15th (May 17th this year only) and pay at least 90% of that with your extension.
If you don’t file an extension on time, then a 2nd penalty on the balance due starts running. It’s called the “Late-Filing Penalty.” It is an additional 5% of the outstanding balance of tax owed to a maximum of 25%. So, please! At least file an extension, even if you can’t pay the tax right now.
Some folks have heard a rumor that the IRS picks on folks who file extensions, creating a higher risk of an audit. Not true. The IRS computers are set to run in receiving mode until October 15th. They don’t even run any statistical analysis on total returns filed, total taxes paid, total refunds paid, etc. until after that October 15th deadline. They don’t care when you file within that 10 and one half month time span, they just care that you pay at least 90% of the ultimate tax due by April 15th (May 17th this year only).
Sharpen your pencil, come up with a good idea of the balance you still owe the IRS (if any), fill out form 4868, mail it in, along with your check to the address given in the instructions for that form. (You can get the form and it’s instructions at the http:www.irs.gov website.)
Also, while you’re temporarily in the mood for getting things done, you might go ahead and put in your application for membership in Procrastinators Anonymous before you lapse back into the summer doldrums. Most folks just keep putting that off and never get it done. 😊
Did you hear? Prov 27:23 says, “Know well the state of your flocks, and pay attention to your herds.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.