Managing Your Finances: Tips for Tax Season and Beyond
As the October 15 deadline approaches for taxpayers who requested an extension, it’s essential to understand the implications of missing the deadline and how to avoid penalties. With natural disasters affecting many parts of the country, eligible taxpayers may receive an automatic extension to file their 2023 federal returns, with new deadlines ranging from November 1 to May 1, 2025.
For those who requested an extension but don’t file their return by October 15, the penalty for filing late is 5% of unpaid taxes per month or partial month, capped at 25%. Additionally, there’s a late payment penalty of 0.5% of the unpaid balance per month or partial month, up to 25%, plus interest.
To avoid or limit penalties, experts recommend filing for an extension, estimating what you owe, and making payments toward that balance before April 15 and in subsequent months. This strategy can help reduce the underpayment penalty and eliminate the failure-to-file penalty.
If you’re unable to pay what you owe, the IRS recommends applying to set up a payment plan. Short-term and long-term payment plans are available, but be aware that interest will continue to accrue on unpaid taxes.
Now is also a good time to start planning ahead for future tax seasons. With provisions in the 2017 Tax Cuts and Jobs Act set to expire at the end of 2025, higher tax rates may be on the horizon. Consider accelerating capital gains, income shifting strategies, and adjusting your withholding or making estimated tax payments for this year to avoid surprises next April.
By taking proactive steps, you can minimize penalties, manage your finances effectively, and set yourself up for long-term financial success.
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