April 15th is Tax Day and the deadline for filing individual tax returns to the IRS. Maybe you figure that you have a few months to worry about it and taxes end up on the back of your to-do list. February ends and March begins… okay, there is still time to get it done. Now April is starting and there are mere weeks left. You are working overtime at your job and now there is a family emergency, so there is no time to spare to sit down and fill out tax forms. What can you do?
As complicated as the Internal Revenue Code may be, there is a surprisingly easy and straightforward process to request and obtain more time to file. There are three ways to obtain an extension from the Internal Revenue Service.
- FOR EVERYONE – Anyone can fill out and submit Form 4868 (a half-page document easily downloadable from the Internet) and request a six-month extension to October 15th to file your tax return. It is no-questions asked and you do not have to state a reason. You must file this request by the due date of your return to receive this extension.
- FOR U.S. CITIZENS OR RESIDENTS LIVING OUTSIDE OF THE COUNTRY – If you are a U.S. citizen or resident and you are living outside of the United States and Puerto Rico on the due date of your return, you are eligible for a 2-month automatic extension to file your return. In additional to living out of country, your main place of business or post of duty must also be outside of the United States or Puerto Rico. You may also be eligible for this automatic extension to June 15th if you are domiciled in the U.S. but you are in military or naval service abroad on the due date of your return. You do not have to file a request for this extension, but you must attach a statement to your tax return explaining why you qualified for it to avoid penalties. Even if you qualify, you can still file Form 4868 to get the full six-month extension to October 15th.
- FOR INDIVIDUALS SERVING IN COMBAT ZONES – If you are qualifying military personnel and you are serving in a designated “combat zone” (Arabian peninsula since 1991, Kosovo since 1999 and Afghanistan since 2001), you qualify for several automatic extensions on your tax obligations. Any deadline for filing taxes, paying taxes or claiming refunds is automatically extended at least 180 days after the last day you are in the combat zone or the last day of any continuous hospitalization from injury in the combat zone, whichever is later. Additionally, your deadline is extended by the number of days you had left when you entered the combat zone. For example, if you entered the combat zone on February 15th and your tax return was due April 15th, the two months you had left to file is added on to the 180 days you receive at the end of your combat zone service.
Unless you are in a combat zone, you must still pay any taxes that are due even if you are granted an extension to file. Failing to pay your taxes timely will subject you to interest and the late payment penalty. The late payment penalty is ½ of 1% of any tax unpaid by April 15th charged every month or part of the month not paid to a maximum of 25%. You may be able to avoid this penalty if you show reasonable cause to the IRS for not paying on time, but the interest due is not waivable.
If you receive an extension to file your federal return, this does not automatically extend the deadline to file a state tax return. In Michigan, you must file Form 4 or a copy of your valid federal Form 4868 to receive an extension. Michigan does recognize any valid federal extension and will extend the state tax filing deadline accordingly if the proper paperwork is received. However, like the Internal Revenue Service, you must still pay any Michigan taxes due by April 15th even if you receive the extension or risk paying interest and penalties.
So what is the IRS penalty for not filing a tax return by the due date? The late filing penalty is 5% of the amount of tax due for each month or part of the month that your return is late up to a maximum of 25%. If your return is more than 60 days late, the minimum penalty is $210.00 or the balance of the tax due on your return, whichever is smaller. You may be able to avoid this penalty if you show reasonable cause to the IRS for not filing on time. Fortunately, there is no penalty for filing a late tax return if you are due a refund. But if you expect to owe and you need more time to file, timely filing Form 4868 with a fair estimated payment of taxes owed can save you substantial money down the road.
If you have any further questions about federal taxation, then do not hesistate to contact the experienced tax attorneys at Kershaw, Vititoe & Jedinak PLC today.