It’s that time of year again. Though Tax Day has long been behind us, that also means we’re swiftly approaching another major tax deadline: Oct. 15. The 2021 tax extension deadline will arrive in just a couple of short weeks, and it’s an important one for anyone who has yet to file their 2020 taxes.
Neglecting to file your tax return can cost you. Forgetting or choosing not to file can lead to big consequences with regard to the IRS, and can set you on a path to tax debt, wage garnishments, tax liens, and more. Depending on what you owe the IRS, this can serve as a financial speed bump or a complete roadblock—one that puts you out of reach of your financial goals for good.
And in 2021 specifically, you may not just end up facing these consequences by not filing. You may also miss out on some huge benefits.
For an expert tax team with two decades in the business, the tax extension deadline is nothing new to us. But we’ve found that many clients don’t quite realize the significance of the deadline until it’s too late—and their tax debt has begun spiraling out of control.
In 2021, staying informed can help you avoid the worst outcomes associated with the IRS, while capitalizing on all the benefits that you may have available to you. We’re going to walk you through the upcoming tax extension deadline. We’ll share what you need to know, the consequences of not filing, and how to create a plan to get your taxes filed on time and error-free.
In just a few weeks, the tax extension deadline will pass on Oct. 15. But what is the tax extension deadline, really?
The 2021 tax extension deadline—or in any year—is effectively your final deadline to file your taxes. Prior to Tax Day, which usually falls on April 15 but was delayed to May 17 this year, you have the option to file for an extension. When you file this form, the IRS will grant you an additional chunk of time to file your tax return. That date typically falls on Oct. 15, or six months after Tax Day.
Importantly, the tax extension doesn’t apply to a few situations that often come hand-in-hand for taxpayers who have yet to file. Here are a few critical points the IRS mentions:
So, to sum up, tax extensions only apply to filing your taxes, not to paying them. And for the IRS to accept your extension request, you’ll need to file it prior to the original date of your return. In 2021, that refers to the May 17 tax deadline.
The two most common penalties taxpayers face include the Failure to File penalty and the Failure to Pay penalty. Before you understand the consequences of missing the 2021 tax extension deadline, it’s important to understand what’s at stake and how these two penalties—not to mention interest—may impact you.
When you file for an extension on your taxes, you kick the can down the road in terms of the failure to file penalty. But should you miss the Oct. 15 deadline, you may end up back on the hook. And the failure to file penalty can add up quickly.
Here’s a few details about the penalty, according to the IRS:
So let’s say you owe $1000 in taxes. Each month (and on the first day of the next month), you’ll owe $50 as a Failure to File penalty—up to $250.
In theory, if you’ve successfully applied for the tax extension, you shouldn’t owe the IRS any money. However, if for some reason you erred in your tax bill estimation, you may find out months later that you owe money—and penalties, as well.
Here’s what you should know, according to the IRS:
So, let’s say you owe $1000 in taxes. Each month (and on the first day of the next month), you’ll owe $5 as a Failure to Pay penalty. But if you’ve missed the 2021 tax extension deadline, that means you’re also behind on your filing. So your Failure to File and Failure to Pay totals will combine to $50 monthly. And once you’ve maxed out your filing penalties, your payment penalties will continue to accrue.
So, what happens when you miss the tax extension deadline? Well, it all depends on your tax situation for the year in question—which in this case will be tax year 2020. Your consequences can vary wildly from absolutely nothing to swiftly accumulating tax penalties and interest. Here’s what missing the 2021 tax extension deadline means for you, depending on your current tax situation.
Regardless of the year, the most ideal situation you can be in when facing IRS deadlines is not to owe the IRS money in the first place. The reason for this boils down to a simple point. IRS penalties and interest accrue based on your tax balance. And it doesn’t matter how you do the math: Zero dollars times anything equals zero dollars.
So if you didn’t owe the IRS any money to begin with, or if the IRS actually owed you money, missing the 2021 tax extension deadline won’t put you in a position of accruing penalties and interest on your tax balance. Technically, you would receive a failure to file penalty—but because you don’t have a tax balance in the first place, the penalty effectively disappears.
There are other adverse impacts of failing to file, but we think they fall more into the bucket of what you’ve missed out on, rather than hard consequences. We’ll cover them in the next section: “Benefits of Filing by the 2021 Tax Extension Deadline.”
Recall: Applying for an extension to file your taxes doesn’t give you an extension to pay your taxes. But if you’ve paid your taxes for 2020 in full, you’re in luck when it comes time to the 2021 tax extension deadline. Similar to those who didn’t owe the IRS taxes in the first place, your tax total will sit at a very comfortable zero dollars.
So if you miss the tax extension deadline, you will technically incur a failure to file penalty. But since the IRS bases that penalty off your tax bill of zero dollars, you won’t owe anything because of this penalty.
A word of caution: As more and more taxpayers look to outsource the tax preparation process to tax programs like TurboTax or to tax representation firms like us, many still don’t have a clear sense of their tax obligation until they file. And those with multiple incomes, significant life events such as divorce or the birth of a child, and other situations may not realize their full tax impact until that point. So despite your certainty that you’ve estimated and paid your taxes correctly, you may find out too late that you were incorrect.
And that could mean that you not only owe the IRS, but you’ve been accruing a failure to pay penalty and interest for months without realizing it—and you will continue to do so after missing the tax extension deadline for 2021. This brings us to our third tax situation.
Generally, the IRS requires you to estimate and pay your tax liability prior to granting you an extension on filing your tax return. But let’s say you discovered you made a mistake when estimating your tax obligation and actually underpaid. In these situations, the IRS may have granted you a tax filing extension, but you still owe them money.
In this case, missing the 2021 tax extension deadline puts you into the worst scenario when it comes to dealing with the IRS. You become a non-filer with a balance. Your balance, though perhaps not yet assessed by the IRS, may end up retroactively assessed, at which point your failure to pay penalties and interest will be stacked upon by your new failure to file penalties.
This is one of the many unfortunate scenarios by which spiraling tax debt begins its downward turn.
While there are many serious and life-changing consequences to missing the tax extension deadline, the game changes significantly when you don’t owe the IRS. For many, simply “not owing the IRS” serves as enough incentive to neglect filing in a timely matter—or at all.
However, there are actually many benefits you miss out on by failing to file on time. And in 2021, there are additional benefits related to various economic impact payments and federal programs that you leave on the table when you don’t file on time.
Here are the biggest benefits of filing by the 2021 tax extension deadline.
When you don’t owe the IRS, you don’t have to worry about the consequences of failure to file penalties. After all, you don’t have an outstanding tax bill! However, when you don’t owe the IRS, there’s a decent chance the IRS may, instead, owe you.
When you don’t have a tax background, it’s easy to state with certainty that you’ve accessed every single tax deduction or credit that may apply. For example, we find thousands upon thousands of dollars for our clients in extra tax deductions and credits each and every year.
The result? Your zero dollar tax bill may transform into a $200 refund. Or even a $2,000 refund! However, the IRS will not process that tax return until you’ve filed your tax return.
Unfortunately, this means millions of well deserving taxpayers end up never getting their hands on their well-deserved tax returns. How much? Well, in 2020 the number of tax returns set to expire (for the 2016 tax year) totaled $1.5 billion. That’s a lot of money! Leaving your piece of that total unclaimed just doesn’t make sense to us.
You have three years to claim your tax refund, but if you’ve already filed your extension, you’re doing nothing but disadvantaging yourself by not filing by the 2021 tax extension deadline. As much as tax deadlines can provide stress, they can also serve as good incentives to get your tax return filed and get your tax refund processed.
(By the way, we can help with this if you want to get started.)
Plenty of incentives exist that should sway you to file your tax return on time—whether on Tax Day or at the tax extension deadline. However, this year holds some particular benefits for tax filers who ensure they get their returns in by the 2021 tax extension deadline. And those specifically have to do with the last year and a half of the pandemic.
A number of economic relief and stimulus payments have gone out over the last year, and they’re still in the process of distribution. Multiple states, as well as the IRS, have announced varying forms of relief for taxpayers. By not filing your taxes, you may voluntarily be passing up on the opportunity to collect these payments.
First, and probably the most publicized of which, the advance child tax credit payments. The IRS outlines changes to the Child Tax Credit, intended to help families get advance payments of the credit, which was expanded. If you have filed your taxes for 2019 or 2020, the IRS can process payments for families with qualifying dependents. However, if have not yet filed for either year, you may not get access to these advance payments. And if you opt not to file next spring, you’ll leave the entirety of the credit on the table.
Additionally, other states have individual benefits they have extended to qualifying taxpayers. For example, California has extended the Golden State Stimulus to qualifying families and individuals. However, this stimulus payment will only go out to certain people that file their 2020 tax returns. As California’s Franchise Tax Board explains, if you qualify, all you need to do is file your 2020 tax return. But you have to do it by Oct. 15.
Why miss out on these benefits?
So, now we have a very clear picture of the stakes at plan when it comes to the 2021 tax extension deadline. You don’t want to miss it, and we don’t want you to miss it. However, just like leading into Tax Day, the prospect of filing your taxes and accounting for a full year’s worth of financial comings and goings can provide a distinct challenge to many.
So what should you do over the next couple of weeks to ensure you get your taxes filed on time? Here’s a few tips to ensure you get your taxes in—on time and error-free.
Many of our clients have found filing taxes a challenge not just because of the physical act of filling them out, but also because of what they represent. The idea of “filing taxes” carries a certain weight, and it’s challenging to remove that from the equation when it comes down to getting your taxes filed and out of the way. The concept of spending hours upon hours filing, well—just isn’t great.
Fortunately, you can combat this by breaking down the tax filing process into smaller chunks. For example, you can make “collecting and organizing” step it’s own piece of the process. This way, you’ll have everything set and in one place. And you can slot that into any half hour or hour of free time you find yourself with in the coming weeks.
It may seem silly, but it’s just psychology. Break down the task of your tax filing, and you’re much more likely to get it done by the tax extension deadline in 2021.
When you make mistakes on your tax return, you run the risk of slowing down the process of the IRS processing it. And you run the risk of an audit, too. But especially when you’re facing a time crunch like this one, the chances of making errors rises. After all, you’re moving quickly. You’re trying to get things submitted. And ultimately, “done” can seem good enough.
Unfortunately, the IRS doesn’t always respond well to “done.” While you may get your tax return in before the tax extension deadline in 2021, do you really want to open up a separate door to an IRS audit? We wouldn’t.
Just as you would if you had two months to knock out your taxes in March, make sure to double and triple-check your tax return. You should ensure you’ve included every tax document, receipt, or piece of information required. And you should also ensure you’ve entered every bit of information correctly. After all, simple issues like errors with your Social Security Number, math, or even spelling can represent a large enough issue to trigger an audit.
Not that an audit will spell doom when your 7 and 1 looked a bit too similar on your tax return, of course. But after filing for a tax extension then rushing to complete your tax return, do you really want to tack a tax audit onto everything else?
If you filed for a tax extension this year, the deadline is right around the corner. And now is the time to get going.
There’s plenty of bad that can come from missing the tax extension deadline in 2021, but there’s plenty of good you run the risk of missing out on if you don’t get your return filed. Hopefully now you have a better sense of the stakes. Fortunately, you have plenty of time to get your tax return filed.
We hope this has served as a reality check, as well as a call-to-action. You have the time, knowledge, and resources to get your tax return filed and error-free. And if you need any assistance, we’re here and ready to help.
Worried about filing your return by Oct. 15? Or are you already facing an issue with mounting tax penalties and interest with the IRS? Send us a message today via our free live chat. We’ll get started fighting the IRS for you today.
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