About 19 million U.S. taxpayers requested an extension to file back in April, according to the IRS, giving them an extra six months to submit their 2023 federal income tax returns.
For many of those taxpayers, the October 15 final deadline is fast approaching.
Taxpayers in federally-declared disaster areas, which currently cover all or parts of 25 states and several U.S. territories, will have even more time.
Eligible taxpayers will receive an automatic extension to file their 2023 federal returns, with new deadlines ranging from November 1 to as late as May 1, 2025, depending on where they live. Check the IRS database to find out if you may qualify for an automatic federal extension, and reach out to your state about next steps for your state return.
From hurricanes to tornadoes and wildfires, these natural disasters occurred after the April 15 federal tax deadline, when tax returns and payments were due. So affected taxpayers who originally requested an extension will have more time to file, but not more time to pay, according to the IRS.
Penalties can add up
For most taxpayers who requested an extension, but don’t file their return by October 15, the penalty for filing the return late is 5% of unpaid taxes per month or partial month, capped at 25%.
If you didn’t pay enough tax by April 15, the late payment penalty is 0.5% of your unpaid balance per month or partial month, up to 25%. You will also incur an interest-based penalty.
You won’t be penalized if you’re owed a refund.
Taxpayers can avoid or limit penalties by filing for an extension, estimating what they owe and making payments toward that balance before April 15 and in subsequent months, experts say.
Then “there’s no failure-to-file penalty because they have an extension, or the underpayment penalty gets significantly reduced because they have had extra payments done throughout the year,” said certified public accountant Miklos Ringbauer, founder of MiklosCPA, an accounting and tax strategy firm in Los Angeles.
If you can’t pay, consider an installment plan
If you can’t pay what you owe right now, the IRS recommends applying to set up a payment plan.
A short-term payment plan gives you up to 180 days to pay if you owe $100,000 or less in tax, penalties and interest. A long-term payment plan lets you pay monthly if you owe less than $50,000.
However, the IRS expects you to pay as you go, so you’ll continue to incur interest on unpaid taxes on those installment plans. But the failure-to-file penalty is cut in half while an installment agreement is in effect, according to the IRS.
Start planning ahead
There isn’t much you can do at this point to change the outcome of what you owe for 2023, but now is a good time to start planning ahead.
With provisions in the 2017 Tax Cuts and Jobs Act set to expire at the end of 2025 if Congress doesn’t take action, higher tax rates could be on the horizon.
“Maybe you want to accelerate some capital gains or do some income shifting strategies,” said Jim Buffington, a CPA and advisory services leader for Intuit Accountants. “Now would be the time to begin talking about those so that you can make arrangements before the end of 2024.”
Also, “consider adjusting your withholding or making estimated tax payments for this year so that you don’t get a surprise bill next April, and you won’t owe or will owe less of a penalty for underpayment,” said IRS spokesperson Eric Smith.
If you increase the tax withheld from your pay now, he said, the IRS “assumes you made payments equally throughout the year and that works to your favor when it comes to any estimated penalty that would apply.”