Suppose you just don’t have your 2015 Individual Income Tax Return ready to file by Monday, April 18. Maybe you haven’t received the Schedule K-1 from a partnership of S corporation or a trust or estate. Maybe you just have not found time to get the return prepared.
You can file form 4868 (by April 18) and get an automatically approved Extension of Time to File the 2015 return. That will avoid the 25 percent of the tax due failure to file on time penalty.
However, the extension is for filing the return, not paying the tax. You’re to try to properly estimate your 2015 tax liability (after claiming the various credits including tax withheld, education credit, earned income credit, credit for minor children, etc.). If there’s probably still an amount you’ll have to pay, you’re supposed to pay it with the extension.
IRS will charge interest on any amount not paid by April 18 (the final amount on the return that’s finally filed later). IRS will also charge another penalty that will be only 6 percent a year rate for failing to pay the tax timely. That’s sort of like additional interest. Back in time quite a few taxpayers were glad to pay IRS interest on the amount they still owed. The cost of the interest was low compared to what they would pay a bank or other lender. Congress put that additional penalty into the law to encourage folks to pay their tax on time.
Some folks have been worried if they file an extension, it increases the odds of an IRS audit. That’s not correct. IRS waits until after Oct. 15 when the extension expires to choose most returns for audit. Most of the returns being audited now are those returns filed for year 2014.
Of course, with the no significant increase in the funds to run IRS and the additional work of the Obama medical insurance IRS must do and the increased activity of IRS on auditing folks with foreign accounts, IRS is having trouble just answering the telephone calls from taxpayers.
So, IRS is doing more “correspondence” type audits and inquires. Those are more current than the usual IRS office or field audits. And, if you made a mistake on your return or failed to include all of the income that’s reported to IRS, then the correspondence type audit will be done a little quicker. But if you do a good job of estimating your 2015 tax liability (after credits), then the extension of time to file is going to be approved by IRS. Just be sure to pay by April 18 what you think the tax owed is going to be. We haven’t seen many extension requests to not be approved.
If you haven’t filed yet for year 2014 or earlier, you should still do form 4868 for 2015.
Did you hear? “In levying taxes and in shearing sheep, it is well to stop when you get down to the skin” Austin O’Malley.