By Julian Block
Tuesday, April 15, is the deadline for filing Form 1040 for calendar year 2014. It can prove expensive to miss the deadline because the law authorizes the Internal Revenue Service to impose a substantial, nondeductible penalty. Generally, the penalty is five percent of the balance due (the amount that remains unpaid after subtractions for taxes previously paid through withholdings from wages and quarterly payments of estimated taxes). The IRS charges five percent for each month, or portion of a month, that a 1040 is late.
The penalty tops out at 25 percent of the balance due — a truly steep charge. Assume a balance due of $10,000. That works out to $500 a month, becoming $2,500 when more than four months elapse before your return reaches the IRS.
IRS guidelines spell out when it will forget about late-filing penalties. You have to convince it that the delay was “due to reasonable cause and not due to willful neglect.” An example: You’re unable to complete the return by the deadline because your residence, place of business or records are destroyed by fire, flood, other casualty or civil disturbance, or burglary. Another acceptable excuse is the death or acute illness of an immediate family member, or your own serious illness.
It’s a waste of time to plead that you didn’t have enough cash on hand to settle the tab at filing time. Even if you’re able to establish that, an unyielding IRS will refuse to waive the penalty.
On the plus side, the IRS says that there’s no need to panic if you need extra time to complete your return. File easy-to-complete Form 4868 (known officially as Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) by April 15 and receive an automatic six-month extension to Oct. 15.
Inevitably, there are some hitches. Submission of a Form 4868 extends the time to file — not the time to pay. True, the IRS doesn’t require payment by April 15 of the tax you estimate as due. But, failing to do so means you’ll owe nondeductible interest. Your interest obligation continues to build until you pay the tax. The IRS won’t waive the interest charge. It couldn’t care less that you had a good reason for not paying on time. Also, expect the interest charge to be augmented by a computer-generated bill for a nondeductible late-payment penalty on the unpaid tax.
A reminder for when you finally file your tax return: Be sure to enter any extension-related payment on Line 68 of Form 1040 as “amount paid with request for extension to file.”
A simpatico agency also assists the multitudes who are unable to fully pay the balance due when submitting Form 4868. Usually, it allows them to make partial payments in installments.
Need that kind of help? Submit Form 9465 (Installment Agreement Request) and attach it to the front of your return. Be sure to indicate the amount of your proposed monthly payment and the monthly due date.
State tax returns. Requirements vary from state to state. Some states accept Form 4868 for extending a state return’s due date; others require a separate application. Check the rules of the state in which you’re required to file returns, including penalties for any underpayments of taxes.
Julian Block is an attorney and author based in Larchmont, N.Y. He has been cited as “a leading tax professional” (New York Times), “an accomplished writer on taxes” (Wall Street Journal) and “an authority on tax planning” (Financial Planning Magazine). For information about his books, visit julianblocktaxexpert.com.
(NASW members can read the rest of the Winter 2014-15 ScienceWriters by logging into the members area.) Free sample issue. How to join NASW.
.png)
