If You’re Late on Your Taxes…

Tomorrow’s the deadline for filing your taxes, and you’re not ready. Maybe you had personal problems. Maybe you kept procrastinating… or are a little lazy. It happens.

What should you do?

Don’t panic…

Simply by filing Form 4868, the IRS gives you an automatic extension of six months (until October 15).

With the extension, you avoid getting hit with a late-filing penalty, and that can be considerable. The penalty is 5 percent (of the tax you owe) per month up to a maximum of 25 percent of your total tax bill. Avoiding this penalty is too easy to just “let it happen.”

But, there are still two more ways for Uncle Sam to ding your pocketbook.

• Late-payment penalty. If you owe money on your taxes and do not send full payment with the extension application, the late-payment penalty kicks in – and this can be up to another 25 percent of the tax due.

Not quite sure how much you owe? Come up with a “ballpark” figure based on your 2007 taxes, and send as much of that as you can. That way, even if you end up owing more, at least you avoid some of the late-payment penalty.

• Interest. In addition to the late-payment penalty, you’re going to be charged interest on any balance due (tax owed minus the payment you wisely make with Form 4868) at the Federal Short Term Rate plus 3 percent. The rate changes every three months, and the interest is compounded daily.

So get Form 4868 filled in and filed NOW!

[Ed. Note: Internet Money Club member Tim Clay, E.A., is an Enrolled Agent – a federally authorized tax practitioner – and a certified QuickBooks Advisor with 25 years of experience. Visit www.AskTaxGuys.com to learn more and sign up for Tim’s free tax-tips newsletter.

Comment on this article