Tax filing deadline: Just because you go on extension doesn't mean the IRS doesn't expect payment now.
When it comes to paying taxes, the only thing worse than having to hand over your money is finding out that you overpaid or cost yourself unnecessarily. The best way to avoid forcing yourself into an overpayment situation is to make sure that you have a good understanding of the process, as well as the most economical ways to proceed. Here’s a question we’re frequently asked, as well as an answer designed to help you avoid overpayment:
I’ve heard that there are advantages to delaying paying taxes that are owed, and even to filing later. Is this true?
There are specific rules regarding the payment of taxes, and it is important that you understand them so that you can avoid having to pay a penalty. Taxpayers who owe more than $1,000 during a single tax year are restricted from paying all of it in a lump sum unless that payment is made during the first three months of the year. Payments can be made in two ways: either via payroll withholding administered by your employer or via quarterly estimated payments that you make throughout the course of the year. Taxpayers are permitted to do both, and are expected to make payments that represent either the full amount that was owed for the previous year’s income, or 90 percent of what is earned for the current year – whichever of the two is less. That figure is adjusted to 110 percent of the previous year’s tax burden for those whose adjusted gross income in the previous tax year exceeded or was equal to $150,000.
Payment of those estimated taxes is due on specific dates throughout the year: April 15 (April 18, 2016), June 15, September 15 and January 15. This means that the first quarterly payment for the current year is due on the same day as your completed tax return for the previous tax year.
The Internal Revenue Service does allow a certain amount of flexibility in the quarterly estimated tax payment schedule for those whose incomes are earned in an abbreviated period of time. This allowance has been created to accommodate people who, for example, might not be able to make a payment in April or June because they don’t begin to earn their annual income until August or October.
If you believe that the amount of tax that you paid falls short of the actual amount that you owe, you are required to calculate the amount of your underpayment using Form 2210, which provides step-by-step instructions to guide you through the process. If you do in fact owe money for taxes you haven’t paid, you need to provide the information about your annualized income on form 2210, Schedule AI, or if you are a farmer you would use the specialize Form 2210F. Payments that should have been made earlier in the year are subject to interest charges, so it makes sense to pay as soon as possible in order to avoid owing more than you need to.
If you are interested in filing for an extension on submitting your tax return, you can avoid having to pay a late filing penalty by filing for the extension prior to the April 18th tax filing deadline. Doing so does not, unfortunately, absolve you of paying penalties on any taxes that you should have paid previously, but didn’t – all it does is give you additional time to get your required paperwork in. The IRS charges interest rates on taxes that are past due that are much higher than the current market rates, making it much more cost effective to submit the taxes due in a timely manner. Delaying payment of your tax liability simply puts off the inevitable and unnecessarily enriches the IRS or your state’s tax department. Get your payments in on time.