Tax day: Advice for 10 million late filers
Here's what you need to know if you are going to miss the April 15 deadline for filing your 2008 tax returns.
NEW YORK (CNNMoney.com) -- If you're among the 10 million people expected to miss the April 15 tax deadline, don't fret, there's still time to file for a six-month extension.
The extension, which can be done using IRS form 4868, gives taxpayers until Oct. 15. While an extension does not buy you extra time to pay what you owe, it's better than ignoring April 15 altogether.
"The absolute worst thing you can do is not file a tax return," said Nancy Mathis, a spokesperson for the Internal Revenue Service. "When people don't submit a tax return, it starts the clock running and they could end up owing more in penalties and interest than they would have in taxes."
The IRS encourages taxpayers to include at least some payment, even if it's not the total amount. While you may get slapped with late filing and late payment penalties, not filing could leave you in a worse position, especially if you owe.
"You can go to jail for not filing a tax return," said Greg Plechner, certified financial planner with Modera Wealth Management. "You can't go to jail for not having the money to pay on your tax return."
And the IRS is pretty willing to work with struggling taxpayers, said Plechner. "What I find is that if you send a letter to the IRS and explain whatever the reason why you were late, they can be pretty forgiving, but if you stick your head in the sand, they don't like that."
Even if you miss the April 15 deadline, you still need to file a return. Extensions will not be accepted after April 15.
Some 70% of employees have enough tax withheld from their paychecks that they wind up getting refunds. But for the remaining 30% and those who have to calculate their own taxes, like the self-employed, underpaying can be costly.
For example, the late payment penalty comes to 0.5% of the total amount owed for each month after April 15 that your taxes remain unpaid up to 25% of the total unpaid tax. There is also interest levied on the unpaid tax, which could easily run into the thousands because it accrues until the last payment is made. That rate, which is variable, currently stands at 4%.
However, if you have paid 90% of what you owe by April 15 and you pay the remaining 10% of what you owe on Oct. 15, you will not be held liable for the late payment penalty.
In addition to the late payment penalty, you may face a late filing penalty. That typically works out to 5% of the total unpaid tax owed for each month that the return remains unfiled after April 15 up to a maximum of 25% of the unpaid tax.
If the return is not filed within 60 days, or by June 15 this year, there is a minimum "failure to file" penalty of $135 or 100% of the unpaid tax, whichever is less.
Even if you can't pay the full amount of your taxes, you should still file. The government is willing to work with filers who can't pay what they owe up front.
"Common sense would say some people -- possibly more than usual -- might have trouble paying their full tax bill in a timely manner [this year]," said Mathis. "Our message to them is come in, call us, come by one of our offices, let us work with you."