![]() Tip 5: Consider a 2023 Section 475 MTM election It’s better to pay an extra amount for the extension to set yourself up for three good choices: A cushion on 2022 if you underestimated your taxes, an overpayment credit toward 2023 taxes, or a tax refund for 2022 if no 2023 estimated taxes are due. Why pay estimated taxes for Q1 and Q2 if you incur substantial trading losses later in the year? Most traders don’t make estimated tax payments until Q3 or Q4, when they have more precise trading results. I recommend the following strategy for traders and business owners: Overpay your 2022 tax extension on April 18, 2023, and plan to apply an overpayment credit toward Q1 2023 estimated taxes. (See Interest rates increase for the first quarter of 2023.) The IRS increased interest rates in 20, and current rates are 7% for underpayments. Traders with 2023 year-to-date trading gains and significant tax liability in the past year should consider making quarterly estimated tax payments in 2023 to avoid underestimated tax penalties. ![]() Tip 4: Add a payment cushion for the first quarter (Q1) 2023 estimated taxes due Make sure to file it on time to avoid a minimum penalty if you were wrong and owe taxes for 2022. If you don’t expect to owe 2022 taxes by April 18, 2023, it’s easy to prepare an extension with no balance due. The IRS also charges Interest on taxes paid after April 18, 2023. Some traders view a late-payment penalty as a 6% margin loan, but it’s not tax-deductible.īy simply filing the extension on time in the above example, you avoided a late-filing penalty of $11,250 (six months late x 5% per month, less late-payment penalty factor of 2.5% = 22.5% 22.5% x $50,000 = $11,250). The late-payment penalty is $1,500 (six months late x 0.5% per month x $50,000). A late-payment penalty applies because you did not pay 90% of your tax liability on April 18, 2023. You file your 2022 tax return on the extended due date of October 16, 2023, with full payment. Suppose you file an extension by April 18, 2023, but cannot pay any of your tax balance due. If you can’t pay in full, you should file your tax return or extension and pay as much as possible.Īn example of late payment and late-filing penalties: Assume your 2022 tax liability estimate is $50,000. It should help avoid the late-filing penalty, which is ten times more than the late-payment penalty. Tip 3: File an automatic extension even if you cannot payĮven if you can’t pay what you estimate you owe, file the automatic extension form on time by April 18, 2023. Don’t attach the statement to Form 4868.”Ĭheck these types of penalties with your state, too. Attach a statement to your return fully explaining your reason for filing late. You might not owe the penalty if you have a reasonable explanation for filing late. If your return is more than 60 days late, the minimum penalty is $450 (adjusted for inflation) or the balance of the tax due on your return, whichever is smaller. The penalty is usually 5% of the amount due for each month or part of a month your return is late. The remaining balance is paid with your return.Ī late filing penalty is usually charged if your return is filed after the due date (including extensions). At least 90% of the total tax on your 2022 return is paid on or before the regular due date of your return through withholding, estimated tax payments, or payments made with Form 4868. ![]() You’re considered to have reasonable cause for the period covered by this automatic extension if both of the following requirements have been met. Attach a statement to your return fully explaining the reason. The late payment penalty won’t be charged if you can show reasonable cause for not paying on time.
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