Goodbye holiday season and hello tax season! The days leading up to that mid-April deadline can be stressful, but take a breath and check out these four need-to-knows before you file. You’ll be glad you did.
1. Know Your Dates
Let’s start with some great news: You’ll have three extra days to file your taxes this year! April 15 falls on a Saturday and the following Monday is Emancipation Day in D.C., so this year’s filing deadline is Tuesday, April 18. If you’re not one to wait until the due date, the IRS begins accepting returns as early as January 23.
Business owners, keep in mind that corporate returns are due March 15, not April 18.
2. Extension to File, Not Extension to Pay
If you think you're going to owe money this year, keep in mind that filing for an extension will only give you more time to file your return. The extension does not give you more time to pay. The tax is still due by the deadline, and you must pay it on time to avoid penalties. If you can’t pay by the deadline, file on time and request an installment agreement. There are two types of penalties. One is failure to pay and the other is failure to file. The failure to pay penalty is 5% of the unpaid taxes each month (or partial month) and it can build up to 25% of your unpaid taxes. The failure to file penalty if the return is filed more than 60 days after the due date or extended due date is the minimum of $135 or 100% of the unpaid tax.
So it is crucial to file even if you can’t pay because the failure to file penalty can be significantly higher than the failure to pay. You can always pay as much as you can with the filing and then ask for an installment agreement for the difference. (For related reading, see: What to Do When You Can't Pay Your Taxes.)
If a failure to file and a failure to pay penalty apply concurrently, the maximum amount charged for those two penalties is 5%. There are some exceptions to the penalty. If you requested an extension and you paid at least 90% of the taxes you owe, then you may not pay a failure to pay penalty but you have to pay the balance by the due date of the extension. The IRS also waives the penalty if you can show reasonable cause but, why take the chance?
3. Don't File Too Soon
W-2s have to be mailed by January 31, but other documents like 1099-Bs might not be mailed until February 15, so if you sold stocks, etc., make sure to wait for all of the documents before filing. Otherwise, you'll likely have to amend your return later. Some investments don’t issue the 1099-Bs until mid-March so it is best to wait instead of having to amend your return later. (For related reading, see: Mistake? How to File an Amended Tax Return.)
4. Consider Contributions
If you qualify, it might be a good idea to make traditional IRA or Roth IRA contributions. You have until April 18 this year to contribute. Keep in mind that this is without extensions, so even if you're filing for an extension you still need to make the contribution by April 18.