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As the tax deadline of April 15 approaches, many taxpayers are scrambling to file their returns amid significant changes introduced by the One Big Beautiful Bill Act. This year, the average refund has risen to approximately $3,500, owing to new and expanded deductions. However, these changes have left some filers feeling uncertain, resulting in a decrease in the total number of returns submitted compared to last year.
Key Tax Filing Information
For those still preparing their returns, there is still a chance to avoid penalties. Taxpayers can extend their filing deadline to October 15, however, tax payments must still be made by the April 15 deadline. Failing to file your return on time can incur penalties that are significantly more severe compared to late payment penalties. According to Andy Phillips, Vice President of the Tax Institute at H&R Block, the penalty for not filing can reach up to 25% of your total tax bill over time, whereas the penalty for failing to pay is capped at 25% of unpaid taxes after being charged 0.5% each month.
Phillips advises that if you cannot meet the deadline, applying for an extension is wise. “Requesting an extension is better than nothing,” he states, emphasizing the importance of filing even if you can’t make a payment immediately.
How to File for an Extension
To file for an extension, taxpayers can:
- Pay their estimated tax bill online and note it as an extension request, receiving a confirmation number.
- Submit Form 4868 via mail, tax software, or through a tax professional to receive an automatic extension, also requiring an estimate of what you owe if applicable.
It’s crucial for filers to know that although the form doesn’t necessitate an estimated payment for an extension, interest on late payments will accrue, and penalties may apply.
Payment Plans for Outstanding Tax Bills
If you’re unable to pay your tax bill, the IRS offers payment plans, although both fees and interest may accumulate. Taxpayers can opt for a short-term payment plan to pay off their entire debt within 180 days if it is below $100,000. Alternatively, a longer-term installment agreement is available for those owing under $50,000, with setup fees varying based on payment methods. These options help to ease the burden, but it’s still advisable to pay as much as possible by the deadline to mitigate further interest and penalties.
Noteworthy Tax Changes Under the New Act
This tax season brings unprecedented adjustments that merit closer inspection:
- Cap on State and Local Tax Deductions: The allowed deduction has increased substantially from $10,000 to $40,000, benefitting homeowners in high-tax regions the most.
- Deductions for Vehicle Loans and Employee Tips: Taxpayers can claim up to $10,000 in car loan interest on recently purchased vehicles made in the U.S., along with deductions on tips and overtime, irrespective of whether they are itemising their deductions.
- Additional Deductions for Seniors: Taxpayers aged 65 or older can claim a deduction of $6,000, with joint filers receiving up to $12,000, although this is subject to income limitations.
It is important, however, to note that while these changes provide opportunities for savings, they can also prompt further questions during the filing process as the IRS adapts systems to cater to these adjustments.
Conclusion
With the tax deadline looming, a thorough understanding of the recent changes and proactive measures is essential to navigate this complex tax season. Taxpayers should consider their options carefully—whether to file for an extension, make arrangements to pay outstanding bills, or capitalise on new deductions—to not only reduce potential penalties but also enhance their refunds. As always, consulting with a tax professional can provide valuable insights tailored to individual circumstances.
