This is my last tax article of the 2018 tax season. Since Sunday is April 15 and Monday, the 16th is the Emancipation Proclamation Holiday in Washington D.C., where the main offices of the Internal Revenue Service are located, we will have until Tuesday, April 17 to finish up as many returns as we possibly can. It’s been somewhat of an odd season for preparers. It started with Congress making immense late December changes that delayed the software people from being ready to start processing as early as normally happens. It continued with Congress doing the unthinkable by making mid-February changes that, in some cases, affected returns that we had already submitted. I have only been in the tax business since 1978 but I am pretty sure that is a first, perhaps going all of the way back to March 1, 1913. I do have to say that the IRS, the software providers, and tax preparers have rolled with Congress’ antics and those changes quite well. In addition, the IRS and the State of Michigan have instituted several positive identity theft procedures that appears to be working reasonably well. In speaking with other preparers and judging from my own Action Tax experience, the number of taxpayers who have had fictitious tax returns filed in their clients’ names has decreased dramatically. Even though it seems as though data breaches from Experian, Facebook, Whole Foods, Sonic, Panera, etc., etc. are announced every day; 17 major breaches in January, 2018 alone, the IRS and MI have gotten better at keeping thieves from filing fake tax returns using that information. Now, they aren’t about to tell any of us all of their secrets but whether it’s screening returns by comparing this year to last year or using the taxpayer’s driver’s license numbers or using artificial intelligence to determine if a return is real or fake or just guessing right, this year, from my ground level view, it’s working. Keep it up, Internal Revenue Service and State of Michigan.
Since approximately 80% of all returns will be filed by the stroke of midnight on April 17, what happens to the approximately 20% who don’t make it by midnight? Since the penalties for filing after April 17 are based on having to write a check because of having a balance due, that means, by default, that if a return is filed after April 17 by a taxpayer that has a refund coming, there should be no penalty for filing after April 17. The $64,000 question, then, is what are the penalties for filing a return after April 17 with a balance due? First, there are penalties for failure to timely file the return and separate penalties for failure to timely pay the balance due. These two penalties together can accumulate at the rate of 5% per month of the balance due up to a maximum of 25%. For example, a taxpayer owes $1,000 and files the return on April 30. The failure to file a timely return and the failure to pay will amount to $50, $1,000 times 5%. If the return is filed on May 1, the penalty will be another $50. If June 1 comes and goes before the return is filed, another $50 is added to the penalty. Once these two penalties reach 25% or $250, the failure to file penalty is maxed out. However, the failure to pay penalty continues to accumulate at ½% per month until both of the penalties together reach 50%. In addition, interest at a 4% annual rate is assessed for each day the amount of tax is not paid past April 17. It’s easy to see how a taxpayer’s debt can equal the original amount of tax due in not that long of period of time. Bottom line, not filing a return by April 17 is not a bad thing but having a balance due past April 17 is not a good thing either. In the meantime, may the 2018 tax filing season rest in peace. 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