Tax Day Warning: DO NOT Make These Mistakes
Dear Rich Lifer,
Today, May 17, 2021, is tax day! And just like the date, a lot of things are different about this year’s tax filing.
The International Revenue Services (IRS) provided an extension from the traditional April 15 tax deadline because of complications due to the coronavirus pandemic and the tax changes enacted in the American Rescue Plan.
The goal of the extension was to give filers some extra time to get their finances in order after a turbulent year. And now, the time has finally come to finalizing your tax filing.
If you have taken advantage of the extra time and are looking the deadline square in the face today, fear not! We are here to bring you last-minute relief and explain your options if you need more time to file or pay your taxes.
Most states extended their tax filing deadline to match up with the federal deadline of May 17. The only state that did not extend its deadline was Hawaii. Additionally, there are a few states who have extended their deadlines later than today — Iowa (June 1), Maryland (July 15), and Oklahoma (July 15).
States that were impacted by the devastating winter storms also have an additional extension to file both federal and state taxes. These states include Texas, Oklahoma and Louisiana (June 15). Additionally, some parts of Tennessee and Alamaba have extensions till August 2, and some parts of Kentucky have extensions till June 30.
It’s always best to consult with the state tax agency where you live to double-check your individual state’s filing deadline and verify whether it lines up with the federal deadline or not.
Apply for A Filing Extension
It’s important to either file your taxes today or request an extension before midnight tonight. The extension will give you until October 15 to file your 2020 taxes.
However, the extension is only for filing your taxes, not paying them. All your taxes still need to be paid today, or else you will owe interest on unpaid taxes and potentially face additional penalties.
Applying for an extension is very easy: you can do it online through the IRS’s website with a simple form. However, there are some pros and cons to consider before you apply for an extension.
Let’s break them down…
Pros of Filing Extensions
An obvious pro of getting a further extension is allowing yourself more time to file the most accurate return possible. You or your tax preparer will have more time to determine which tax breaks apply to you. It’s definitely better to do a correct and thorough tax return rather than rushing or guessing and risk making mistakes that could lead to penalties.
The penalty for filing a late return is 5% of any unpaid taxes for each month (or part of a month) that a tax return is late — the penalty won’t exceed 25% of your unpaid taxes. If your return is more than 60 days late, there’s also a minimum penalty for late filing – either $435 or 100% of the tax owed (whichever is less).
So if you are worried about meeting the deadline and still have questions about your taxes, an extension to file will save you a decent chunk of change.
The later you file, the longer you have to claim a refund related to a return. In other words, if you discover a mistake in your return and the result is a larger refund to you, it will be easier to get that money back if you file later in the year.
The tax law allows three years from the time a return is filed or two years from the time the tax is paid, whichever is later, to claim a refund related to the return.
Cons of Filing Extensions
If you are expecting a refund, it’s probably not a wise decision to file for an extension because the longer you wait to file your taxes, the longer it will take to get your return.
If you have children and are expecting money back thanks to the newly-revised Child Tax Credit, you also will want to file your taxes on time since that money will be going out to qualifying families beginning in July.
Additionally, as we mentioned before, an extension to file does not equal an extension to pay! You will still be required to pay the estimated amount of taxes you owe by midnight tonight.
The failure to pay penalty is 0.5% of the unpaid amount for each month, or part of a month, up to a maximum of 25%.
If you are worried about paying your taxes, you should consider signing up for the IRS’s repayment plan, make an “offer in compromise,” or request a temporary collection delay. If you file your return by its due date and request an installment agreement, the penalty goes down to 0.25% for any month in which an installment agreement is in effect.
Let’s talk more about payment extensions…
Payment Extension Options
Whether you have already filed, plan to file today, or plan to get a filing extension, your taxes are due today!
If you owe a large amount of money back and don’t have the funds to cover the payment, you have a few options.
There is no fee to ask the IRS for a 120-day extension to pay your taxes. You can submit this application online by using this form or call 800-829-1040. You will have to pay interest and other feed on the balance until it is paid off in full.
You can use the same link to request an installment plan, which is a great option if you owe a lot of money back. This allows you to make monthly payments until the total is paid off. As long as you owe less than $50,000, you can take advantage of this option.
You can also pay your taxes with a credit card if you’d prefer to owe money to your bank rather than to the IRS. You will have to pay a convenience fee, but you can rack up credit card points at the same time.
If you are rushing to get your taxes filed by midnight, the last thing you want is a small error messing up your whole return. You might think
- Make sure your Social Security number is correct, and if you are claiming dependents, make sure their names and SSNs match!
- Double-check you have entered the correct banking info if you have opted to do direct deposit. You don’t want to end up with your funds in anyone else’s account!
- Make sure you have signed and dated your return — and anyone you file jointly with has also done so!
- We know this can be a stressful time, and we hope these tips and explanations brought some much-needed clarity to the day!
To a Richer Life,
The Rich Life Roadmap Team