New York – The deadline for filing federal and state income taxes is tonight, but many people aren’t yet ready to send in their tax forms – and probably won’t be by midnight.
In recent years, about 9 million Americans – or one out of every 14 filers – have sought extensions, according to the Internal Revenue Service. That’s likely to be true again this year, although taxpayers have an extra couple of days to file because the traditional filing date of April 15 fell on a Saturday.
The reasons people generally give for being late range from not having all the necessary documents to fear that they won’t be able to pay the tax that’s due. And there’s plain old procrastination.
Jackie Perlman, a senior tax research coordinator for H&R Block in Kansas City, Mo., said taxpayers who can’t make the regular filing deadline should request an extension on IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.
That will get them six extra months – until mid-October – to file their forms. In the past, taxpayers got just four months automatically and had to apply again for two more, if needed; as of this year, they get an automatic six months. Most states have similar extension forms.
But requesting an extension to file doesn’t get the taxpayer off the hook on paying taxes. Form 4868 requires taxpayers to estimate their tax liability for 2005 and mail the balance due to the IRS.
“I can’t tell you how important it is to get that extension request in, especially if you think you owe taxes,” Perlman said.
“If you don’t get it in and you owe taxes, you face a nasty penalty – 5 percent per month of the amount due, up to 25 percent.” That means that if a taxpayer owes $1,000 and doesn’t file or request an extension, he or she could end up owing $1,250 in a very short period of time, she said.
How do taxpayers go about estimating their taxes if they’re missing documents? Tax attorney Donna LeValley, contributing editor of J.K. Lasser’s “Your Income Tax 2006,” suggests they look at last year’s tax return.
“If you don’t have all your documents, take last year’s tax return for your estimate,” she said. “Unless you’ve had big additions to your income or you’ve lost significant deductions, it should be in the ballpark.”
And what if the taxpayers don’t think they can pay? LeValley suggests they “pay as much as they can toward what they owe.” The reason is that taxpayers who don’t pay on time can be hit with a failure to pay penalty by the IRS of 0.5 percent per month plus interest of about 7 percent on the unpaid balance. Taxpayers who file on time or request an extension but can’t pay face a reduced penalty of 0.25 percent, she said.
“Frankly, an approach of ‘I’ll wait until they catch me’ is the worst thing you can do” because of the potential penalties, she said.
Harris Abrams, a tax analyst with RIA, a tax information publisher that’s part of Thomson Financial of Stamford, Conn., said people who can’t pay have options, including requesting a hardship extension or an installment payment plan.
“Interest will still accrue, but you won’t be subject to a penalty if you get a hardship extension,” he said. “If you pay in installments, the penalty is cut in half.”
To get a hardship extension, taxpayers must file IRS Form 1127, Application for Extension of Time for Payment of Tax, along with a variety of financial statements; if approved, they’ll be given an extra six months to pay. Installment plans require that taxpayers file IRS Form 9465, Installment Agreement Request, and are generally automatic if the taxpayer owes $10,000 or less and “not too difficult” if the balance is $25,000 or less, Abrams said.
When it comes to extensions, some are automatic, he pointed out.
Victims of Hurricane Katrina have until Aug. 28 to file this year under a blanket extension, and members of the armed forces serving in combat zones such as Iraq and Afghanistan have until 180 days after they leave those zones to file.
Americans who live and work abroad get automatic two- month filing extensions.
