If you are still owing income tax for the 2023 tax year, there are options available to rectify the situation before facing penalties from the IRS. Most filers have until April 15 to file their tax return, with some exceptions for residents of Maine, Massachusetts, and Washington, DC, who have an extra day or two. Additionally, individuals in federally declared disaster areas or affected by the October 7 terrorist attacks in Israel may have extensions to both file and pay their taxes. If you can’t file a full return by the deadline, submitting Form 4868 can grant you an automatic six-month extension to file.
It is important to note that filing an extension only applies to filing your return and avoiding a failure-to-file penalty, not an extension to pay any outstanding balance. If you anticipate owing money, along with filing for an extension, consider sending a payment to the IRS that approximates the amount due. To estimate what you owe, review your prior year’s return and consider changes in your sources of income and any significant life events that may impact your taxes. Tom O’Saben suggests a quick calculation to determine if you owe more than you have already paid the IRS, with different percentages based on income levels.
Failing to file on time while still owing taxes can lead to a failure-to-file penalty, which is 5% of your unpaid taxes for each month or part of a month your return is late, not exceeding 25% of the total. Additionally, a failure-to-pay penalty of 0.5% of your outstanding balance per month or part of a month may apply, also not exceeding 25%. If both penalties occur in the same month, the maximum charge is 5%, with the balance also being subject to interest. Even if you can’t pay in full, making a partial payment by the deadline can reduce penalties and interest.
It is essential to consider repayment options with the IRS and seek advice from professionals such as enrolled agents, CPAs, or tax attorneys to navigate the best plan for your situation. Gig workers, freelancers, and sole proprietors should be aware of potential underpayment penalties if they did not pay estimated taxes quarterly throughout the year or underpaid in any given quarter. Late filers who are due a refund will not face a failure-to-file penalty, as these penalties only apply when taxes are owed and not paid by the due date. However, it is crucial to file within three years of the original due date to receive the refund.
In conclusion, if you are still owing income tax for the 2023 tax year, there are options available to rectify the situation before facing penalties from the IRS. Most filers have until April 15 to file their tax return, with some exceptions for residents of certain states or disaster areas. It is crucial to file an extension if needed and estimate the amount owed to avoid penalties. Seek advice from professionals if necessary and consider repayment options with the IRS to minimize penalties and interest. Remember to file within the three-year limit to receive any refund owed.
