Avoid Fines by Applying for a Renewal of Your Tax Return
If you are delaying filing your tax return, consider applying for an extension today – before the 2020 tax deadline expires at midnight – as you will avoid costly IRS fines for late filing. Here’s what you need to know.
Why you can apply for a tax credit extension
If you missed tax filings (such as a random 1099 Form), faced an emergency, or simply forgot the deadline, you can still buy more time to file your tax return by applying for an extension by October 15, 2021 (Taxpayers residing in abroad are eligible for automatic renewal until June 15th – details can be found here )
However, this does not mean that your taxes are not yet due today. If you think you owe the IRS money for 2020, you must still pay at least 80% of your checking tax bill by the end of today. This payment may be made as part of your tax extension request, even if it is a rough estimate (if you overpay, the IRS will refund the difference to you later). Otherwise, starting tomorrow, you will be charged a penalty of 0.5% of unpaid taxes for each month or incomplete month for which you are late, up to 25%.
So why would you need to apply for an extension if you still get interest? Well, renewal avoids an additional penalty that is ten times the late payment penalty equal to 5% of your unpaid tax bill for each month or incomplete month for which you are late for a refund, up to 25%. (And just because the IRS loves to be confusing : if the Failure to File and Failure penalties are executed at the same time, you actually only pay 4.5% for the Failure to File penalty, which is a maximum of 22.5%, as the IRS limits the combined penalties up to 5% in general).
How to apply for a tax extension
To file an extension, you need to file IRS Form 4868 with the IRS electronically by midnight using tax prep software (free versions are available here if you are making $ 72,000 or less). These programs can provide you with a rough estimate of possible taxes due, which can then be paid as part of the 4868 filing process. This will give you more time to process and avoid late fees. (You can also submit the form by regular mail, but make sure it is postmarked May 17).
You can also get an automatic renewal by making an electronic tax payment of your estimated tax amount directly to the IRS before midnight, Kiplinger said. Select Pay Tax Now on the IRS web page to make an electronic federal tax payment using your bank account, credit or debit card (processing fees apply). When paying, select the Renewal option, and then make sure you save the confirmation number after the payment has been processed.
Also important: rules for tax extensions vary from state to state, so check yourstate’stax agency website before applying.