Due to Covid-19, the IRS extended the tax return filing and payment deadline to July 15, 2020. If you are unable to file your return by this date, you may request an extension which will give you until October 15, 2020 to submit your tax return. However, an extension only gives you extra time to file your tax return; your payment is still due no later than July 15, 2020.
When a taxpayer has not filed a tax return by the extension deadline of October 15th, the IRS will gather all of the tax documents that have been transmitted to them and create a substitute return. If their data shows that you are owed a refund, nothing further will be done. If the data shows that you owe money, the IRS will begin sending out collection letters.
Overpayment of Taxes
If you qualify for a refund and wait more than 3 years to file your return, the IRS will take that refund away because the statute of limitations will have expired. Don’t expect them to send you a reminder letter!
Balance Owed–Types of Penalties Assessed
Failure to file penalty—for every month that your tax return remains unfiled, a 5% penalty applies, up to 25% of the tax due.
Example: if you owe $1000, it could cost you a penalty of $250 for not filing, but only a $5 penalty for not paying. Don’t forget that in addition to the penalties listed above, the IRS will continue to charge interest on any unpaid balance.
Increased Audit Risk
In addition to the penalties and interest you are charged for not filing your return, you also increase your chances of being audited. When you file on time, you have a 3% chance of an audit. If you don’t file on time, your chance of being audited increases to 50%.
The general rule is to file by the extension due date since the consequences are harsher for not filing than not paying the tax due. However, be proactive to pay any tax due by the deadline, not the extension deadline.
Don’t put yourself in a position of grief. Even if you are not ready to file, file something and you can amend the return later.
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