What if filing taxes late

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Topic Author
AQ
Posts: 513
Joined: Mon Feb 25, 2008 11:38 pm

What if filing taxes late

Post by AQ »

Always having filed tax on time until this year. I'm still waiting for some tax forms (K-1) and it looks likely I may not be able to get it done by the deadline only two weeks away. So want to plan it now.

I could file a tax extension form for Fed (and for State as well?), but my understanding is that I should pay whatever I'm due. The problem is that I don't know exact tax liabilities at this point, and the range is relatively big to me (in terms of six figures). I used the safe harbor rules to cover the underpayment penalty part.

I'm reluctant to overpay an upfront payment with tax extension form, and then wait for a refund later. So I try to figure out what is my maximum possible damage by doing that.

1. If I file a tax extension form without paying anything upfront, then I would own some interest payment on the tax due? For example, say, if the tax bill is 100K, and my tax filing is just 2 weeks late (I expect those forms should arrive soon if not necessarily prior to May 17th), then I'll own a penalty = 100K * 2% int * 14 days / 365 = $77? Is this line of thoughts correct, or I miss some other heavy penalty, say interest rate is much higher than 2%? (would take this route to pay a couple of hundreds extra if my understanding is correct)

2. I might still choose to pay some amount upfront, say 50K in the aforementioned example. Does TurboTax allow me to simply have IRS to ACH withdraw funds from my banking accounts with an extension form, so I don't have to use DirectPay or ETFPS, etc.?

Thanks!
jebmke
Posts: 12644
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: What if filing taxes late

Post by jebmke »

Based on many recent reports, Direct Pay (and EFTPS) are more reliable than making the payment through a software firm. They may have resolved the issues with software interface to MEF filing system but for weeks, payments were being delayed for many days.
When you discover that you are riding a dead horse, the best strategy is to dismount.
MarkNYC
Posts: 2050
Joined: Mon May 05, 2008 7:58 pm

Re: What if filing taxes late

Post by MarkNYC »

Any federal tax unpaid by the original due date of the tax return (May 17th this year) is subject to interest, currently assessed at an annual 3% rate. If the unpaid tax is greater than 10% of the total tax liability for the year, then a late-payment penalty of 1/2% per month will be also be assessed. For purpose of the late-payment penalty, even one extra day will equal an extra month, so 32 days late would be 2 months late.

In your situation, the choice is between paying more with the extension and risking having paid more than was needed, and paying less with the extension and risking the interest/penalty assessments. You should obtain any information you can regarding the expected income that will show on the K-1s to be received later, and make your choice regarding an extension payment amount.

States may have different rules regarding required extension payments and amounts.
Topic Author
AQ
Posts: 513
Joined: Mon Feb 25, 2008 11:38 pm

Re: What if filing taxes late

Post by AQ »

So the late tax penalty is 9% annualized. In this low rate environment, 9% is a bit stiff :(
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