Procrastinating on your taxes? Here’s our FAQ on extensions and filing late
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Procrastinating on your taxes? Here’s our FAQ on extensions and filing late
Taxpayers get a little extra time to file their returns this year, with the deadline pushed to Tuesday, April 18, at midnight.
The deadline this year was extended since the 15th fell on a weekend and Washington, D.C., is observing Emancipation Day on Monday.
Parts of Alabama and Georgia and most of California were declared federal disaster areas because of severe storms, so the Internal Revenue Service is giving those residents until Oct.16 to file their taxes. An extension will be automatically provided — no applications necessary.
Due to inflation, the Internal Revenue Service has raised the thresholds for this year’s income tax brackets and increased the standard deduction: For single taxpayers and married individuals filing separately, the deduction has increased by $900 to $13,850; for married couples filing jointly, it’s increased by $1,800 to $27,700.
As you’re preparing your taxes this year, here’s a guide to navigating the filing process:
How do you file a tax extension?
If you don’t live in a disaster area but still need some extra time to file taxes, you have until April 18 to request the Oct. 16 extension.
To do so, fill out IRS Form 4868 and mail or send it electronically via the IRS’ e-file service using your tax software or through a tax professional who uses e-file.
You can also use the IRS’ Free File Program, a partnership between the agency and tax preparation companies. The program has several providers that will allow you to file for an extension at no charge, available here.
Will I get penalized if I don’t file my taxes on time?
The IRS sends penalty notices if you owe money and fail to file your taxes on time. (There is typically no penalty for failure to file if the government ends up owing you a refund.)
This penalty is based on how late you file and how much you owe in unpaid taxes, amounting to 5% of unpaid taxes for each month, or part of a month, that a return is late. The penalty caps out after five months and will not exceed 25% of your unpaid taxes.
Christine Speidel, a visiting associate professor at American University’s Washington College of Law, told Marketplace last year that even if you can’t pay the full amount, paying some of that balance is better than nothing.
“The late-filing penalty and the late-payment penalty are both calculated based on your balance due. So if you can chip away at that balance over the next few months, it will really help you on the penalties and interest,” said Speidel, who’s also director of Villanova University’s Federal Tax Clinic.
Why is my tax refund lower this year?
The average amount refunded this year is 11% less than it was in 2022, down from more than $3,260 to about $2,900 in 2023.
That’s because some people were still getting stimulus payments, and the pandemic relief that taxpayers received was temporary.
The American Rescue Plan expanded the child tax credit and the earned income tax credit, providing taxpayers with greater financial assistance. Those expanded benefits expired at the end of 2021, and the loss of that extra money will especially hurt lower-income Americans..
Tax refunds are the “largest single payment” that many low- and middle-income families receive for the year, Erica York at the nonprofit Tax Foundation told Marketplace’s Samantha Fields.
“It can represent a pretty big share of their total annual income,” York said.
Will Venmo, Paypal and Zelle have to report business transactions above $600?
The IRS announced last year that payment apps like Venmo, PayPal and Cash App would have to begin reporting users’ business transactions to the agency if they exceeded $600 a year. These apps typically have to report users who make more than 200 transactions a year and have business transactions exceeding $20,000. Users would need to fill out 1099-K forms sent by third-party payment companies.
But the IRS is delaying the new policy in an effort to “reduce confusion” during this tax season and will provide further details “in the near future.”
In the meantime, third-party payment companies won’t have to follow the revised reporting requirements, although some states have lower reporting threshold requirements. But you must still report all taxable income.
Can I claim cryptocurrency losses?
Last year’s cryptocurrency crash led to a $2 trillion wipeout of crypto assets, which has left some wondering whether they can deduct those losses on their taxes.
This year, the 1040 tax form has a clearly labeled “digital assets” section, asking taxpayers: “At any time during 2022, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”
Like any security or asset — whether it’s a house, stocks or bonds — you can’t deduct a loss unless you’ve actually sold the asset, explained Lisa De Simone, associate professor of accounting at the University of Texas at Austin and co-host of the podcast “Taxes for the Masses.”
There is one notable distinction between cryptocurrency and assets like stocks: If you sold cryptocurrency assets at a loss and reported it on your tax return, you could still turn around and quickly repurchase “that same exact crypto,” De Simone said.
“Your economic exposure hasn’t changed, you’re still fully invested for the same amount in that asset. But you’ve now got a loss that you can use on your tax return to offset other capital gains, or even ordinary income up to $3,000,” De Simone said.
And if your capital losses exceed that $3,000 cap, you can carry that amount to future years to offset any capital gains or income.
But there are repurchasing restrictions if you sell a security.
“If you sell a stock at a loss, and then go and buy that stock within 30 days in either direction, before or after, that loss is going to be disregarded by the IRS because you haven’t changed your investment position,” De Simone said.
The IRS prohibits you from doing that due to the “wash-sale” rule, which De Simone said doesn’t apply to cryptocurrency.
Are there other tax resources I can use?
The IRS has a main telephone line that you can call with any questions, along with specific lines geared toward helping people with language interpretation or answering questions about nonprofit taxes or estate and gift taxes. Those numbers are listed here.
“If you have any questions or concerns as you’re filing your return, don’t be afraid to reach out,” De Simone said.
There are also taxpayer clinics nationwide that will represent people with lower incomes in tax disputes.
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