15 April- Tax Day in the US is the date on which the individual tax returns must be submitted to the IRS (Internal Revenue Service) unless it falls on a weekend or holiday. In this case, the expiration date to the next working day. You also have to apply for an extension to this date if you need more time to prepare your tax returns. Filing an extension can provide an additional six months to file your taxes.
Although, the IRS charges penalties and interest if you file your taxes late or delay your tax payments. The IRS has pushed forward tax day for 2020 to July 15. Thus, this year you have an extra three months to finish your 2020 taxes, which would normally be due on April 15, 2020.
Penalties for Late Tax Payments
Penalties for delay in payment of taxes or failure-to-pay applies to each portion of your federal tax debts that are outstanding on the due date. The due date is usually the filing date of April 15 in most years. For 2020, the due date is July 15. IRS department levies a penal interest of 0.5% for each month by which the tax payment is delayed up to a total of 25% of the tax you owe.
Penalties for Late Submission of the tax-return
The penalty for failure-to-pay , is a percentage of each part of the taxes owed . Penalty for late filing of taxes is a percentage for each month or part of a month that your return is filed late. The clock starts ticking on the deadline for your taxes that would normally be April 15, unless you request an extension on that date. You will have time until October 15 before this particular penalty kick in if you have asked for an extension.
Penalties keep on increasing until you file your tax return. The longer you wait to file, the worse it gets. You have to pay at least $ 435 or a penalty equal to 100% of the tax you owe, whichever is less if you fail to file within 60 days of the due date. This penalty was increased to $ 435 from $ 330, under the terms of the ‘Retirement Communities Each Enhancement Act’, which was passed in 2019.
Here, an exception exists for the late-filing penalty if you file a return because you are due a Tax refund there is no Late Filing Penalty .
Quarterly IRS Interest Rates
Compound interest adds up daily, and that is usually added to the unpaid taxes in each of the time payment is due until the date of payment. The interest rate is set by the IRS every three months on the federal short-term rate plus three percentage points.
On June 4, 2020, the IRS lowered the interest rate by 2 percentage points for the 3rd quarter of 2020. For the 3rd quarter of 2020, the interest rate of 3% tax balance due to the IRS. This is down from 5% during the first two quarters of this year. The applicable quarterly rate of interest is charged for each quarter, so you will still pay a higher percentage in the first and second quarter 2020 balance. The decision of the third quarter is not retroactive.
The IRS also will pay 3% interest on overdue refunds, while this is rare as the IRS has an “administration period” of approximately 45 days if you filed on the due date or after the due date to process your return and issue a refund.
Why the Rates Changed?
The Internal Revenue Code requires that the IRS examines quarterly interest rates to keep pace with the economy. This does not mean that the interest rate is always changing quarterly. This will not change if no major swings take place in the national economy, but it did not happen in 2020 with the recession that began in February with the coronavirus pandemic.
In simple words, the IRS interest rate is the federal short-term rate plus three percentage points, rounded to the nearest percent. It puts the 3rd quarter of 2020 at the short-term level of about 0%. Technically, it was 0.25% in May 2020, the month used in the calculation of the IRS.
Requesting an Extension
You should immediately apply for an extension of time to file your tax return if you know you are probably going to be late. It is a simple matter of filing Form 4868 with the IRS, although it will not be accepted if the primary filing deadline has come and gone. You do not have to wait until October 15 to file your return if you happen to be able to send your tax return before that time.
If you want to request an extension even if you have completed your back and it looks like you owe taxes. At least, it encourages your tax filing deadline back in October and helps you to avoid the filing of a more serious penalty. You have to estimate what you think you will owe when you ask for an extension and make a payment when you submit the form. The extension gives you time to take you back to a tax professional to ensure that you do not lose the deduction, credit, or some other details that can help you.
A tax deduction lowers taxable income and can push you into a tax bracket lower will reduce your tax bill while the tax credit comes directly from what you owe to the IRS and sometimes can put you in a situation where you will receive a refund instead of paying.
Waiving Off the Tax Penalties
IRS may provide administrative assistance and exemption from tax penalties if you qualify under the policy of its First Time Penalty Abatement Policy. You do not have to have a penalty in the prior three tax years to qualify. You also must have filed your current year return on time and paid or arranged the payment of any taxes you may owe.
IRS may exempt a late payment penalty if you can show that there is a reason that makes sense and can be justified on late payments. Also, administrative assistance can be provided if you have received misleading advice from the IRS, but it is more difficult to prove and claim. You can reach the IRS via email or telephone.