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Key Reminders for Those Yet to File Taxes as the Oct. 16 Extension Deadline Approaches

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Important Reminders as the Oct. 16 Tax Extension Deadline Approaches

Get Organized to Meet the Extension Deadline

As the federal tax extension deadline of Oct. 16 approaches, it is crucial to stay organized to avoid any last-minute rush. Certified financial planner Chris Cybulski advises taxpayers to utilize tools such as highlighters, sticky labels, and manila folders to keep their documents in order. This will help prevent the stress of dealing with an incomplete mess when the deadline is just days away.

Potential Penalties for Missing the Deadline

If you fail to file your 2022 return by the deadline, you may face two penalties imposed by the IRS. According to Kassi Fetters, a certified financial planner and owner of Artica Financial Services, the failure-to-file penalty is 5% of unpaid taxes for each month or part of a month until filing, capped at 25%. In comparison, the failure-to-pay fee is 0.5% per month or partial month, both of which accrue interest.

Consider IRS Free File for Eligible Taxpayers

Despite approximately 70% of taxpayers being eligible for IRS Free File, only 2% took advantage of it during the 2022 filing season, according to the National Taxpayer Advocate. Taxpayers with a 2022 adjusted gross income of $73,000 or less may qualify for this free service. However, it is important to note that Free File is only available until Oct. 16 at 12 midnight ET. This option is particularly beneficial for those with simple returns who do not require ongoing tax planning advice and can financially benefit from the free service.

Opportunities for Tax Deductions and Retirement Planning

Houston-based certified financial planner Scott Bishop emphasizes the limited opportunities left to score a 2022 tax deduction before filing. However, self-employed, contract, or gig economy workers can still contribute to a simplified employee pension (SEP) individual retirement account (IRA). This contribution can not only aid in retirement planning but also provide a tax deduction. The IRS allows the establishment of a SEP IRA as late as the business' income tax return deadline, including extensions. Note: It is crucial to consult with a certified financial planner or tax professional to ensure compliance with IRS regulations and to make informed decisions regarding tax planning and deductions.

The Implications of Tax Extension Deadlines on New Business Formations

Importance of Organization and Timely Filing

The looming tax extension deadline of Oct. 16 poses significant implications for new businesses. The advice from certified financial planner Chris Cybulski to stay organized is particularly relevant. New businesses, often grappling with a multitude of responsibilities, must ensure their financial documents are in order to avoid last-minute stress and potential penalties.

Penalties and Their Impact on Business Finances

The penalties for missing the deadline, as outlined by Kassi Fetters, could have a substantial impact on a new business's financial health. The failure-to-file penalty and the failure-to-pay fee, both accruing interest, could put a strain on the already tight budgets of new businesses. This underlines the importance of timely filing for new businesses to avoid unnecessary financial burdens.

Utilizing IRS Free File

The underutilization of IRS Free File, despite its wide eligibility, presents an opportunity for new businesses. Particularly for those with simple returns and limited resources, this free service could be beneficial. However, the limited availability of this service until Oct. 16 emphasizes the need for businesses to act promptly.

Opportunities for Tax Deductions and Retirement Planning

Scott Bishop's advice on tax deductions and retirement planning is crucial for new businesses. Self-employed, contract, or gig economy workers who form the bulk of new business owners can still contribute to a SEP IRA. This not only aids in retirement planning but also provides a tax deduction, offering dual benefits. In summary, the tax extension deadline comes with various implications for new businesses, highlighting the need for timely filing, proper organization, and strategic tax planning.
Story First Published at: https://www.cnbc.com/2023/10/10/federal-tax-extension-deadline-is-oct-16-here-are-3-things-to-know.html
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