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Understand Your Options as the Automatic Tax Extension Deadline Nears
According to the Internal Revenue Service (IRS), less than one-third of the more than 13 million taxpayers who requested automatic six-month extensions this year have yet to file their taxes. As the Oct. 17 automatic extension deadline approaches, millions of Americans will again rush to get their returns completed. Unfortunately for many, taking advantage of the extension does not always equate to maximizing tax benefits.
“So many people are not aware of the extent of their options as they prepare for the end of tax season,” said John Kasperek, Jr., of John Kasperek Co., Inc. in Calumet City, Illinois. “I encourage everyone on an automatic extension to take advantage of the extra time and consult with a tax accountant, or at the very least to thoroughly review their returns for overlooked benefits before filing by the October 17 deadline.”
Some of the commonly overlooked benefits noted on the IRS website include:
- Benefits for low-and moderate-income workers and families, especially the Earned Income Tax Credit. The EITC Assistant can help taxpayers see if they’re eligible.
- Savers credit, claimed on Form 8880, for low-and moderate-income workers who contributed to a retirement plan, such as an IRA or 401(k).
- American Opportunity Tax Credit, claimed on Form 8863, and other education tax benefits for parents and college students.
- The health care law includes the individual shared responsibility provision and the premium tax credit that may affect a taxpayer’s return.
Unfortunately, even with an extension, taxpayers should be aware that they will owe interest on any tax not paid by the regular due date. The late payment penalty is usually ½ of 1% of any tax (other than estimated tax) not paid by April 18, 2016.
Taxpayers with extensions should file their returns by Oct. 17, even if they can’t pay the full amount due. There are late filing penalties, usually of 5%. Penalties are charged for each month or part of a month the tax is unpaid. These penalties will not be charged if there is “reasonable cause” for not paying on time (attach a statement to your return fully explaining the reason to your Form 4868).
“The key to the automatic extension is creating the best possible estimate of your tax liability based on the information you have and considering previous years, and then making whatever payment you can along the way,” said Kasperek. “If you aren’t able to pay in full by the deadline, you may set up a payment agreement with the IRS online.”
Taxpayers who owe $50,000 or less in tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment plan for up to 72 months, or request a short-term plan. Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS.
There are a number of payment methods available online including IRS Direct Pay, Electronic Federal Tax Payment System (enrollment is required) and Electronic Funds Withdrawal which is available when e-filing. Taxpayers can pay what they owe using, the IRS2Go, mobile app.