It's getting near that time--April 15--the filing deadline for your federal income tax return.
Many taxpayers wait until the last minute and then rush to beat the clock.
If you file late, you're assessed a penalty. If you file on time but don't include the full payment, you're also hit with a penalty.
Taxpayers who do not file on time are slapped with a 5% charge for every month their returns are overdue (not to exceed 25% of the total owed).
On top of the failure-to-file penalty, you will have to pay one-half of 1% of the amount due for each month, or part of a month, your payment is late.
Neglect Is Costly
Let's say you owe $1,000 in taxes and are four months late in filing. This neglect would cost you $220 in penalties--5% of $1,000 times four ($200), plus one-half of 1% times $1,000 times four ($20).
If you see it's impossible for you to make the deadline, you can file for an automatic four-month extension. This escape hatch saves many an anguished taxpayer from the last-minute sweats.
It's certainly nice to know you have this button to push--but there's a catch. You get an extension for filing your return, not an extension that delays payment. Your payment is due in the mail by April 15--or else.
So, how do you know how much you owe if you haven't filled out your return? You have to make an educated guess. If your guess is off on the short side by more than 10%, you'll be hit with a failure-to-pay penalty plus interest for each month you're late.
It's a good idea to make your estimated payment on the high side to avoid the penalties. And, if you're over the mark, you'll get a refund.
You are also penalized for underpaying your tax, even if you pay on time. Your payment must come within 10% of the amount due, or you may have to pay a penalty of 10% of any tax you owe--plus interest.
Don't Send 'Frivolous Return'
You can be zapped with a $500 penalty on top of all the other penalties if you file a "frivolous return." This is a return that is so incomplete or messed up so as to make it impossible to determine just how much you owe. These penalties are usually aimed at people espousing some cause aimed at denying the government tax payment (anti-war or anti-nuclear groups, for example).
If you misjudged your payment on the low side, you may be able to dodge some of the penalties by showing that you had good reason to think you could take certain deductions or credits, even though the Internal Revenue Service disallowed them (causing your underpayment).
If you hurry up to make the deadline and later find you may have missed some valuable deductions, credits or exemptions, not to worry. You can file an amended return and get a refund for overpayment. You can file amended returns up to three years after you filed your initial return.
Of course, if the government owes you money because too much was withheld during the year, you won't be hit with any late-filing or late-payment charges.
The only penalty you suffer by filing late when the government owes you a refund is the fact that you don't have your money in hand. It's like a no-interest loan to Uncle Sam.