Extension to file taxes does not equal extension to pay taxes

Need more time to prepare your federal tax return? Taxpayers who aren’t able to file by the April 18, 2023, deadline can request an extension before that deadline, but they should know that an extension to file is not an extension to pay taxes as per IRS’s Tax Tip 2023-30.   If a taxpayer owes taxes, a taxpayer ought to pay the taxes by the filing due date of April 18, 2023 in order to avoid potential penalties and interest on the amount owed. Taxpayers must file their extension request no later than the regular due date of their return.  Taxpayers who request a six-month extension to file their taxes have until October 16, 2023, to file their 2022 federal income tax return.

Taxpayers who don’t meet their tax obligations may owe a penalty

The IRS charges a penalty for various reasons, including if a taxpayer does not:

• File a tax return on time
• Pay any tax owed on time and in the right way
• Prepare an accurate return
• Provide accurate information returns

The IRS may charge interest on a penalty if a taxpayer does not pay in full. IRS charges some penalties every month until a taxpayer pays the full amount owed.

How to request an extension when making a payment for a return with taxes due?

Taxpayers can choose to submit an electronic payment and select Form 4868 (Application for Automatic Extension of Time) to File U.S. Individual Income Tax Return or extension as the payment type. The IRS will count it as an extension automatically, and taxpayers won’t need to file Form 4868.

How to request a free extension to file for a return with no tax due?

Individual taxpayers can file Form 4868.

To avoid possible scrutiny or oversight by the IRS, Accuracy is a key factor when filing Tax Returns  

Taxpayers want to make sure that their returns are processed correctly by the IRS.  Common tax filing errors such as a missing Social Security Number, a name spelled incorrectly, a filing status error, errors in deductions and credits, math mistakes, incorrect bank account numbers, not signing the Forms or a PIN error can cause major problems for a Taxpayer and possibly bounce back a Tax Return back to the Taxpayer.

Taxpayers ought to avoid the following as they are some of the most common Red Flags to the IRS:  

• Failing to Report All Taxable Income. IRS obtains copies of all 1099s and W-2s that Taxpayers receive.  Taxpayers ought to report all required income on your return. IRS computers are efficient at matching the numbers on the forms with the income shown on the Taxpayer’s return. A mismatch sends up a red flag and causes the IRS computers to spit out a bill or reject the return.
• Taking Higher-than-Average Deductions. If deductions on the tax return are disproportionately large compared with the Taxpayer’s income, IRS may pull the return for review.
• Taking Large Charitable Deductions. If charitable deductions are disproportionately large compared with the Taxpayer’s income, it raises another red flag.  IRS knows what the average charitable donation is for a Taxpayer’s income level.   Taxpayers ought to keep all supporting documents, including receipts for cash and property contributions made during the year.
• Failing to Report a Foreign Bank Account. IRS receives Taxpayer foreign financial account information from Foreign Financial Institutions under FATCA as well as other information exchange programs.
• Taking an Early Payout from an IRA or 401(k) Account. IRS wants to be sure that owners of traditional I.R.A.s and participants in 401(k)s and other workplace retirement plans are properly reporting and paying tax on distributions. Special attention is being given to payouts before age 59½, which, unless an exception applies, are subject to a 10% penalty on top of the regular income tax.
• Underestimating Gains made on Investments. If a Taxpayer sells an investment, the Taxpayer needs to figure out the taxable gain (or loss) by taking the difference from what the Taxpayer paid for the investment (cost basis) and the sale price.
• Failing to Report Digital Currency Transactions. IRS is on to digital currency users who have failed to report their profits and pay tax.

Taxpayers ought to be as accurate as possible when filing their tax returns

Taxpayers want to avoid oversights and or mistakes that could raise IRS awareness. This also includes making timely tax payments by the tax filing due date. Taxpayers might need specific specialized tax advice that only a qualified tax specialist can provide.

Who is your specialized tax advisor?  ©