Individual returns are due October 15th for those on extension
The IRS extended the deadline to file your federal income tax from April 15 to May 17,
2021, and they gave a six months extension for filing upon application. If you got a tax
extension this year, make sure to mark the tax extension deadline i.e. October 15 on
your calendar. A tax extension gives six months time to file the tax return, it is not an
extension to pay for taxes, those were still due in May. The Individual taxpayers filing
Form 1040 series returns must file Form 4868 to obtain the automatic extension to
October 15.
For people who filed Form 4868 on or before May 17, 2021, the tax extension gives
them six more months to file tax returns. For those who haven’t filed Form 4868 and
didn’t file the return either, taxes are going to be very late in the eyes of the IRS leading
to failure-to-file penalties and failure-to-pay penalties. Some people like U.S. citizens or
residents who lived and worked outside the country, people affected by certain natural
disasters, and some members of the military automatically get more time.
When you file for an extension for filing tax returns, you should estimate the tax owed
and pay it with your extension application. The extension is for filing the return, not for
the payments of taxes due. If the estimated tax payment ends up being less than the
actual amount that you owed, you will need to pay interest on the difference. Therefore
it is advisable to estimate properly and make the payment on time. You might be able to
avoid the late-payment penalty if you’ve paid at least 90% of the actual tax owed by the
May 17 deadline and you pay the rest with your return. The IRS understands that
people affected by the coronavirus pandemic may not be able to pay in full by the due
date, so they have come up with many payment options. They can be availed online
without reaching out to an IRS representative. There are short-term payment plans for
when you owe less than $100,000 and long-term payment plans for when you owe less
than $50,000.
For individuals who miss the October tax extension deadline, the IRS will charge more
interest, a higher late-payment penalty, and a late-filing penalty. Normally, the
late-payment penalty is 0.5% per month of the outstanding tax not paid by the filing
deadline. The maximum penalty is 25% in this case. The late-filing penalty is 5% of the
amount due for every month or partial month for which the tax return is late. The
maximum penalty is 25% in this case too.
While filing for the return you can consider maxing out 401(K) which will reduce taxable
income by $19,000 (the limit in 2020). You can also contribute to or open an IRA which
will further reduce taxable income by $6,000 or $7,000 if you are above 50 years of age.
You can also contribute to your Health Savings Account (HSA). The 2020 limits were
$3,550 for an individual HSA owner and $7,100 for a family.
If you requested an extension and made estimated payments, that is just half the work.
You still have to file the final return by the October 15 deadline. If you don’t, the
penalties could get worse.