One of the last big tax days of the year happens this coming Monday, October 16. The extension deadline for timely filing of an individual tax return is normally October 15. Since the 15th is a Sunday, however, the next business day, Monday, comes into play and we are allowed to timely file individual returns until midnight of the 16th. This is a year that can be confusing because we were allowed to timely file individual returns until April 18. Normally, filing an extension would allow an additional six months to file the return and that would bring us to October 18. However, as I stated above, we only have until October 16 this year. The six month rule would apply except for the fact that the provision allowing the extra six months is specifically written to allow six months from April 15. April 15 is fixed in regards to getting to October 15. October 15 can be extended to the 16th or 17th or even the 18th but April 15 remains per law as the beginning date for the six months.
What are the consequences of not filing by midnight on October 16? First, there are no additional extensions available. Just the one, six-month, extension is all we get. Returns filed after October 16 then are considered as late filed returns. When the taxpayer eventually files and if the taxpayer is due to get a refund, there are no consequences. The taxpayer just gets his refund. He does not get interest on his refund back to April 18. However, if there is a balance due, there can be severe consequences. There are three common penalties that may be applied. First, the failure to file the return on time penalty is applied to returns filed after October 16 and is calculated as of October 16. Second, the failure to pay tax on time is calculated going back to April 18. Third, interest on the balance due is also calculated back to April 18. The late filed return penalty is 5% per month of the amount of the balance due, accumulating up to 25% of the balance due amount. The failure to pay penalty is calculated equal to ½% per month of the total balance due, accumulating up to 25%, retroactive back to April 18. In addition to the late filed return penalty and the failure to pay penalty, interest is charged from April 18 at approximately an annual rate of 3%. Bottom line, it can be expensive if a balance due is calculated when the return is finally filed. If the taxpayer anticipates having a balance due, it pays to file an extension and pay enough in with that extension so that there is no balance due.
There is one more extension deadline coming up. Non-profit entities filing one of the 990 series of returns with an original due date of May 15 that requested a six month extension will be due to be filed no later than November 15. Most non-profits don’t pay tax so the 990 series returns are information-only returns. Since there is no tax upon which to calculate a penalty, the rules allow the Internal Revenue Service to impose a $20 per day penalty for each day the return is filed late. As a further incentive to file the return, even if it’s not on time, the IRS can and will suspend the tax exempt status of an entity that doesn’t file its return for a period of three years. This can be a bigger penalty than $20 per day. It pays a non-profit to file the 990 even if there is no tax due to keep its non-profit status current and up to date. This is Jerry Coon signing off.
Jerry Coon is an Enrolled Agent.
He owns Action Tax Service on Northland Dr in Rockford.
Contact Jerry at www.actiontaxservice.com