This year, the tax season deadline is April 18, 2016. We get an extra day because of the celebration in Washington of Emancipation Day on April 15th. This extra day is also good for sending in your first quarterly estimated tax payment.
Even with the extra day, some of us cannot file our taxes by the due date. Maybe we are just procrastinators and didn’t get around to it, but most of the time it is due to not getting all of our information. If you know that you will not be getting a refund (or are not sure) and you cannot get your taxes filed on time, you will need to file an extension – IRS form 4868, by 4/18/16. Filing an extension gives you an extra six months to file, or until October 17, 2016.
Filing an extension does not extend the time to pay the IRS. Along with form 4868, you also need to send in an estimate of what you think you will owe. Even though you still have to send in a payment, by filing an extension, you will avoid a late payment penalty and a late filing penalty. A late filing penalty is usually 5% of the amount due for each month your return is late, up to a maximum of 25%. So, depending on how much you will owe, this could really add up!
If you are comfortable making electronic payments, you do not need to send in a check or form 4868; you can pay online using the IRS’ Direct Pay, the Electronic Federal Tax Payment System. By using this method, your extension will be automatically processed. Go to www.irs.gov/payments.
If you find you will owe more than you can pay, you can make monthly payments through an installment agreement with the IRS. As long as you pay your tax debt in full, you can reduce or eliminate your payment of penalties and/or interest. To qualify for an installment agreement you must owe a total of $50,000 or less and have filed all required tax returns. You can apply on line: https://www.irs.gov/Individuals/Online-Payment-Agreement-Application, or complete and mail Form 9465.
When thinking about our tax liabilities, we cannot forget about our state income tax return. If you think you will also owe the State of Michigan taxes, you can either copy your form 4868 and send to the State with your payment, or print out form 4 – Michigan’s extension. Do not send the Michigan an extension if you are getting a refund, even though you will be filing your taxes after 4/18/16. After year-end, there is very little you can do to reduce your tax bill. But, of course, you there are always a couple of options, if you qualify.
If you haven’t filed your return yet or will be filing an extension, you can still contribute to the following accounts by 4/18/16, which will reduce your tax liability:
• Traditional IRA (up to $5,500 if under age 50 or up to $6,500 if 50 or older).
• SEP IRA (contributions for 2015 can actually be made until October 17h if you filed an extension.) If you are an employee you can contribute up to 25% of your salary up to $53,000 for 2015; if you are self-employed you can contribute 20% of your net self-employment income after your self-employment tax deduction up to a maximum contribution of $53,000)
• Health Savings Account – if you are insured through a high-deductible health plan, total contributions limits for 2015 are $3,350 for individuals, and $6,650 per family.
Filing taxes is not something we enjoy, but unfortunately a mandatory task. Once we are done, we can start to enjoy the wonderful spring and summer months in Michigan. Good Luck!