If you haven’t filed your taxes, there are four weeks until the federal deadline, which is April 18 for most Americans.
Some 63.5 million payers have sent returns through March 11, according to the latest IRS filing data, with an average refund of $3,352. However, millions of Americans have yet to file.
“They sort of go into avoidance mode, particularly if they think they might own money,” said Phyllis Jo Kubey, a certified financial planner and president of New York State Society of Enrolled Agents in New York. “And I think that is absolutely the worst strategy.”
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Indeed, one-third of Americans procrastinate on doing their taxes, according to a survey from IPX 1031.
Even if you owe money, it’s critical to send your return on time or file for an extension to avoid the failure-to-file penalty, which is 5% of unpaid taxes for each month until filing, capped at 25%. By comparison, the failure-to-pay fee is 0.5% per month, plus interest.
While an extension prevents the failure-to-file penalty, you’ll still need to pay taxes owed by April 18 to avoid extra penalties and interest, Kubey explained.
A prompt filing may also unlock options for your unpaid taxes, such as a long-term payment plan, known as an installment agreement, if you owe $50,000 or less in tax, penalties and interest.
The demand for professional tax services may be higher than I’ve ever seen.Bryan HaslingPartner at Lodestar Private Asset Management
“It’s gotten much easier to deal with the IRS in terms of collection activity,” she added. “There are great tools for setting up installment payments online.”
With many pandemic-era tax law changes, filing a timely, accurate return has become increasingly difficult for individual filers and businesses.
“The demand for professional tax services may be higher than I’ve ever seen,” said Bryan Hasling, a CFP and partner at Lodestar Private Asset Management in Alamo, California.
If you still need guidance, it may become difficult to lock in a tax preparer as the deadline approaches. And asking for help with filing an extension right before the deadline may result in a surcharge.
“I think people get thrown off by that,” Hasling said. “But it’s the busiest time of the year.”
However, if you’re preparing your tax return yourself, it’s critical to file electronically with direct deposit and to triple-check for mistakes to minimize delays.
For example, the IRS has urged filers to pay close attention when reconciling stimulus checks and advance child tax credit payments. Simple errors may require manual review, sending your return into the agency’s backlog.
It’s also easy to make a mistake answering the “virtual currency” question on the front page of your tax return, according to Hasling. The IRS recently shared guidance regarding cryptocurrency and taxes.
The question reads: “At any time during 2021, did you receive, sell, exchange or otherwise dispose of any virtual currency?”
While having bought cryptocurrency with U.S. dollars doesn’t require checking the “yes” box on the form, you will need to do so if you sold, exchanged, mined assets or used digital currency for purchases.
