a better way to do your taxes
The best time to file taxes is often after April 15
Click here to go straight to instructions for filing an extension.
Many taxpayers fear that not submitting their taxes by the April filing deadline will lead to them getting carted off to Federal prison. Well, while it's great to file by that deadline if you can, many people will be better off waiting until a little later.
First, people make mistakes when they hurry. It's human nature. Whether you prepare your own taxes, or pay somebody to do it for you, chances are whoever is working on your return in early April may feel a little pressure to get things done by the deadline. I'm unaware of any studies addressing this issue, but I would consider it almost a certainty that tax returns filed in the first half of April are more likely to contain mistakes than returns filed at other times. And fixing those mistakes later can be costly and time-consuming. Second, if you pay somebody to do your return, you're probably more likely to get that person's undivided attention, and maybe even a little bit better rate, if you're willing to work with them outside of the busy part of tax filing season.
But what about penalties and keeping the IRS off your back? Well these are certainly legitimate concerns, but let me explain what the actual consequences of filing late are so you can make an informed choice.
Penalties for filing late are based on your tax due. If you have no tax due because you're getting a refund, then there's no penalty. I've known clients who wait a few years and then file several years all at once. (I don't recommend that approach, but some people are comfortable with it.)
If you do owe tax, the penalties are actually fairly minor as long as you file an extension. You can avoid the penalty completely by filing an extension and making a payment with that extension. Of course, if you don't have your return done, how are you supposed to know how much to pay, right? Well, there are tools you can use to estimate your tax liability (see Instructions). Aim high with your estimate, and then when you file you'll get the excess back--often with interest! If your estimate comes in low, but you filed the extension, the late payment penalty is only 0.5% of the amount of underpayment, per month the payment is late. So if you owe an extra $5000, and you file and pay only one month late, then your late payment penalty is a whopping $25. Two months late...$50. So even for a fairly significant tax liability, the late payment penalty is often less than the cost of a parking ticket. There's interest as well. But at 4% annually, this is almost too low to worry about.
One other consideration is whether filing late raises "red flags" or guarantees an audit. I've never seen any evidence that people who file extensions and file a few months late face a significantly higher audit risk. The only possible downside is the IRS has 3 years to audit your return from the filing deadline or when you actually file, whichever is later. But if the IRS hasn't selected your return for audit in 3 years, I wouldn't worry much about the chance they'll choose you in that extra month or two.
Of course, if you owe taxes and fail to file an extension by the filing deadline, then the situation is very different. If you owe money, the late filing penalty is 5% per month...ten times the rate for simply paying late. This can add up fast. So if you don't think you're going to be able to file by the deadline, then head over to the Instructions and get that extension filed (it's easy).
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