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Tax Extensions and Other Advice for Procrastinators

Tobie Stanger

Tuesday is the deadline for filing your 2016 federal and state income tax returns, but don't panic if you're still not ready. The Internal Revenue Service offers lots of options for proscrastinators, from tax extensions to flexible payment options.

How to File for a Tax Extension

If you haven't finished preparing your taxes, you should file for an extension by midnight on Tuesday. The IRS’s Free File online system allows you to prepare and electronically file IRS Form 4868, which is needed for an extension, for free. Tax-preparation software like TaxAct and H&R Block lets you do the same.

An extension will give you until October 16 to file your actual tax return, but it doesn't give you a break on paying your taxes. You'll still have to estimate what you owe for 2016, and pay the IRS along with submitting your Form 4868 by midnight on Tuesday. You'll need to do the same for anything you owe your state.

If you don't pay on time, the IRS will add penalties and interest onto the original tax payment. Currently, the annual interest rate is 4 percent, compounded daily.

If you're expecting a refund from the IRS for the income taxes you already paid in 2016, there's no penalty associated with getting a tax extension, but the government will hold your money until you file. 

And if you fail to file your tax return within three years of the due date, the government gets to keep any refund. According to the IRS, Americans leave an estimated $1 billion on the table each year by not filing for what they're owed.

A few folks get an automatic extension to file their taxes, without having to apply. They include members of the military and eligible support personnel serving in a combat zone, and residents in areas that have been deemed official national disaster areas (this season, they're in parts of GeorgiaMississippi and Louisiana).

Permanent residents living abroad have until June 15, 2017 to file, but they still must pay by Tuesday to avoid interest on taxes owed.

What's the Drop-Dead Time to File?

If you're filing online, your return must be filed before midnight on Tuesday. "If a return is time-stamped by 11:59 p.m. when filing via our offices or online, taxpayers are fine," notes Gene King, an H&R Block spokesperson. 

You'll get an e-mail from the tax software company indicating that your return has been filed, which serves as the time stamp. The fact that the IRS actually may receive your return after midnight is immaterial, King says.

That said, it's better to file earlier in the day rather than later. "You don’t know what might happen that is beyond your control," King adds. 

Occasionally the IRS will reject your return, usually due to a typo or math error. The agency will notify you by email, though it may take a day or two. 

"In that case, you generally have a 5-day grace period—called the 'perfection period'—to electronically resubmit the return," King explains. "For example, if the IRS rejects a return on April 18, 2017, the taxpayer has until April 23, 2017 to resubmit the return." 

If you choose not to resubmit the return electronically and instead paper-file the return, you have 10 days after the e-filed return is rejected to file on paper. 

Paper returns are considered filed at the time the envelope is postmarked. Ask for a receipt from the postal clerk. Use the U.S. Postal Service's Postal Locator to find post offices open late tomorrow.

What About Contributing to an IRA?

Contributions to traditional and Roth IRAs, as well as SEP-IRAs and other retirement accounts, can be applied to your 2016 taxes if they're made by midnight on Tuesday, as well. You must indicate that the contribution is for tax year 2016. 

Maura Cassidy, vice president of retirement at Fidelity Investments, notes that customers who transfer money or send it through a mobile check deposit to the investment house will get a confirmation by mail or e-mail. Mobile check deposits will be accepted up to 11:59 p.m. on Tuesday. If you're immediately investing that money—as opposed to leaving it in cash—you'll get credited for tax year 2016. But purchases made after 4 p.m. on Tuesday will be recorded as having taken place on Wednesday, the 19th.  

If you mail an IRA contribution check to an investment company, the same policy applies as to mailed tax returns: The date of the postmark is what counts, regardless of the date that the investment company receives the money from your account. "That said, it's best to date the check no later than April 18," Cassidy says.

Pay Your Taxes with a Credit Card?

It's tempting to pay your state and federal tax bills by credit card, allowing you to delay actual payment for a month or so and maybe earn reward points in the bargain. But if you file and pay your tax bill electronically, be aware that you will owe more.  

The IRS authorizes just a few companies to process electronic credit and debit card payments. They charge credit card processing fees that this year are as high as 2 percent of your balance, with minimum fee of $2.50.

On a $2,000 tax bill, that's an extra $42.50. If you can't pay your credit card bill on time and in full, you'll be subject to the card's annual interest rate. After teaser rates, low-interest credit cards charge on average around 13 percent, according to Bankrate.com.

If you're banking on credit card rewards, keep in mind that the typical reward is worth 1 percent of the amount charged; on a $2,000 tax payment, that's worth $20. If you're late on a payment, you'll likely wipe out that reward with penalties and late fees.  

What If You Can't Pay?

If you're considering paying by credit card because you're short on cash, keep in mind that the government offers a far less costly option: a payment installment plan (also called an installment agreement) for up to $50,000 in combined taxes, penalties, and interest.

You'll pay interest as long as you owe, but the IRS's current 4 percent annual interest rate is far less than the average credit card rate, and isn't likely to jump up sharply over time like a credit card teaser rate. 

If you choose the installment plan, you still have to file the return on time on April 18 to avoid penalties; you just don't have to pay everything then.

The IRS offers other options for those having trouble paying, including payment extensions and leniency for those in dire straits.

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