What if April 15 rolls by and you haven't had time to complete your return, or you can't pay what you owe? The consequences may not be as serious as you fear -- if you take some simple steps before the deadline.
If you can't (or don't want to) file your tax return by April 15, you can get an automatic four-month extension of the filing deadline. About six million taxpayers request extensions each year. Just complete Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, and file it with the IRS by April 15. You then have until August 15 to file your return without incurring late filing penalties.
If you still want more time, you can request a second extension by filing Form 2688, Application for Additional Extension of Time to File U.S. Individual Income Tax Return. You must file it by August 15 and state a good reason -- for example, your tax preparer is ill and you need time to find a new one -- for your request. If the second extension is granted, you will have until October 15 to file your return.
An automatic extension does not extend your time to pay taxes. If you owe the IRS, include your estimated tax payment with your extension request. If you don't pay at least 90% of your tax bill by April 15, you'll get hit with penalties and interest for the underpaid amount when you do file. The penalty starts at 1/2% per month and can go up to 1% per month of the amount you owe.
If you don't file your return by April 15 or file a request for an extension, the IRS can impose a penalty of 5% per month of the tax due, up to 25%. The IRS will also charge you interest on the tax owed.
If you can't pay all you owe, file a return and send what you can. The penalty for not filing is much worse than the penalty for not paying after you file. The penalty for not filing can reach 25%; the penalty for not paying is only 1/2% per month of the tax you owe. Any partial payment will cut down on the penalty amount.
To learn more about the latest IRS rules and regulations, see Stand Up to the IRS, by Frederick Daily (Nolo).