The October 15 tax-extension deadline is approaching, and failing to file could result in costly IRS penalties and mounting interest. Rackaye Christie of Manifest Tax Services explains why taxpayers should submit their returns on time—even if they cannot pay the full balance—and why the late-filing penalty can be more damaging than the late-payment penalty.
Transcript:
Jeffrey Snyder, Broadcast Retirement Network
Rackaye, it’s so great to see you. Thanks for popping on the program this morning.
Rackaye Christie, MBA, Manifest Tax Services
Absolutely, Jeff. Thanks for having me.
Jeffrey Snyder, Broadcast Retirement Network
I appreciate it. Here we are. It’s Friday morning.
You and I are chatting, but just around the corner is October 15th. Outside of it being a day, my first question is, this is a pretty meaningful day on the tax filing calendar, is it not?
Rackaye Christie, MBA, Manifest Tax Services
Yes. Actually, the importance of that is so overlooked because I feel like we as taxpayers, we hear about the April 15th or 17th date, tax deadline. But for those people who have requested an extension, this is a pretty significant day because this is also another deadline calendar date for the IRS that you have to get it done.
You requested the extension and now the time is here where you have to submit that tax return.
Jeffrey Snyder, Broadcast Retirement Network
I guess just to follow up on that, and thank you for that explanation. I would hope, but I don’t want to make the assumption that people are already working with tax experts like yourself to meet that deadline. If not, can you file another extension after the 15th, or is this the drop-dead date you got to do it?
Rackaye Christie, MBA, Manifest Tax Services
This is the drop-dead date that you have to do it if you requested an extension. Let me clarify one thing that a lot of people don’t know. If you did not request an extension on the last day of April, well, April is the last filing day, April 15th or 17th.
If you did not request an extension that day, you’re already late. But for the people who requested the extension, and it is an application that you have to work with a professional or maybe you do it yourself that you submit and IRS now knows, we’re moving that deadline out to October 15th. A lot of people don’t realize that if you don’t meet this deadline, there’s no more extension, and that is the accumulation of interest and penalties that starts from the 15th.
Jeffrey Snyder, Broadcast Retirement Network
Let’s talk about that. I would prefer to talk about the carrot rather than the stick, but let’s talk about the stick because there are penalties that happen if you do not do the filing. Every American, I would assume, has to file taxes and they have to file this tax return.
What happens if I don’t do what I’m supposed to do by the 15th?
Rackaye Christie, MBA, Manifest Tax Services
If you don’t do what you’re supposed to do by the 15th and you are going to owe taxes whenever you do file that tax return, the IRS is just waiting for you to do it. If you never do, the interest just keeps compounded month after month. The IRS has a calculator for late filers, so you get a $525 penalty late file automatically or 100 percent of what you owe.
If you’re going to owe $1,700, the IRS in their rule book can charge you a late fee of up to that $1,700, but a minimum of $525. I’m sorry, go ahead. Finish your thought.
On top of that, there’s also interest on what you owe.
Jeffrey Snyder, Broadcast Retirement Network
Let me just follow through on that. Let’s just say hypothetically, again, we’re talking carrot and stick, the best thing is always do it. If you don’t do it, what happens if you get fined?
You get this interest plus you get up to $1,700 in addition to what you owe. Can they, they meaning the IRS, can they come after your wages? Can they garnish wages like a collection agency if you don’t do this over a period of time?
Rackaye Christie, MBA, Manifest Tax Services
Yes. I think one of the biggest things that taxpayers need to be aware of is whether you are a business owner or a W-2 employee or a 1099 contractor, whomever employs you are probably reporting you on their taxes. If you avoid tax and you don’t file your taxes, that entity that paid you is probably using you as a deduction.
Something I’ve seen with taxpayers in my business and been in the space for some time is you assume that, hey, I’m just not going to file. Well, the IRS has already gotten a projection of what you made, which is income. Because said company reported that they paid you $100,000 on the W-2.
They already know. They’re just expecting you to file. If you never file, the accumulation is what would be the taxes on the $100,000 income that you made, or in the case of a business, the 1099 that you got from a company that you contracted with.
If you never do that, they can still come after your wages. Yes, they can garnish your bank account. They can put levies or leads against your properties that you owe.
If you own a home, they can put a lien against the home. I’ve seen that first case where a homeowner is trying to sell their home, but the IRS will have to be paid first from whatever the profits or proceeds that you get from the sale of the home.
Jeffrey Snyder, Broadcast Retirement Network
It’s probably best that you don’t run afoul. I think most Americans know this. It’s probably best you don’t run afoul of the IRS.
Let me ask you, just to follow up to that, Rakeh, if they do put a lien against my, say Jeff Snyder didn’t do the filings, didn’t pay his taxes, if they put a lien against me, does it also impact my credit score? Let’s talk a little bit about that because that credit score, you can’t help, you need that for everything in terms of borrowing. That’s an important number.
Does that also count or does it get impact in any way, the credit score of the individual?
Rackaye Christie, MBA, Manifest Tax Services
That is a perfect question. Now, it can show up on your credit report as a debt. So in some cases, it can affect your score because it depends on how much you owe.
There are times when it does not show up on your credit and you just don’t know. You know there’s a debt there, but it’s assigned to anything, real property. So if there’s a lien and it shows up against real property, is if you own a vehicle, they can do a title search and they can find these things.
The IRS, a lot of times they attach to real estate like properties that you owe. So if you ever were to make a sale or attempt to sale, that is one of the first liens that will be paid. You can’t do anything about it.
To answer your question, when it comes to a credit report, sometimes not necessarily. The one size doesn’t fit all. Do you understand?
But if you do have a lien or debt, you’ll always be against your name, so you will never get a refund. So if you ever go back and file, the monies that you owe has to be satisfied first before you ever see a credit from the IRS. But it doesn’t show up on your credit report.
Jeffrey Snyder, Broadcast Retirement Network
Thank you for clarifying that. You know, I know plenty of people that work for the Internal Revenue Service. They’re not heartless, cold people.
Say you can’t make your payment for whatever reason. Maybe you’re having difficulty finding a job. Maybe you’ve got some competing priorities.
As a tax preparer, I’m sure you’re an advocate for your clients, but will they work with you to create like a payment plan? Because ultimately, the IRS wants to be paid. So will they work with people that can’t afford to pay all the money up front?
Rackaye Christie, MBA, Manifest Tax Services
Absolutely. I say it is a reasonable conversation. The IRS does have measures in place that even if you can’t pay your tax debt, still file because filing is a compliance check.
Once you file, you are now in compliance. You can’t qualify for a payment arrangement if you have not filed. So there are certain benchmarks that the IRS looks for to be able to see what you qualify for.
They also have different type of conditional offers or acceptance that different people may qualify for. It could mean that, hey, I have a 0% on that debt for a certain amount of time because you applied for an exception and you got it. There’s also abatement that can happen.
So every situation varies. But the first step is filing. And that is the first action to show good faith to be able to qualify for any other programs that the IRS has.
Jeffrey Snyder, Broadcast Retirement Network
And that’s the benefit of working with someone like yourself as a tax professional is that you probably have relationships with many of the people at the Internal Revenue Service, so you can be an advocate and say, hey, Jane Doe, John Doe, they’ve done X, Y, and Z. How can we broker a payment plan or something like that?
Rackaye Christie, MBA, Manifest Tax Services
Absolutely. It is one of those situations where when you work with a tax professional like myself and we have the credentials with the IRS, we can advocate on your behalf. We can paint the picture to the IRS representative.
Or there’s already tools that we know from looking over your particular circumstance that you will qualify for. We could submit that application on your behalf and wait for the IRS to approve it. Sometimes it’s over the phone agreement.
Sometimes it’s something that we have to prepare in fax or mail. So it’s always good to work with a professional who understands the resolution component of the IRS.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, like I said, they want to get paid the money. They don’t want to chase people down. That’s not a fun job.
I got a question for you that’s maybe a little bit out of left field, but I’m going to ask it anyway. And that is in terms of your role as a tax preparer, how are you seeing artificial intelligence kind of, is it creeping into your business? And if so, how is it?
What are you seeing in terms of its implementation within accounting and tax preparation, if I may ask?
Rackaye Christie, MBA, Manifest Tax Services
I believe the use of artificial intelligence has been penetrating the financial services significantly, particularly in my firm. We do use tools on the intake process, but not necessarily preparing taxes. There are chatbots that I’ve seen different firms utilize to support their staff.
It’s like a SOP that is created into an AI that say, if this were to happen, what should this happen? What should happen? And I feel like that helps to transform because it is the key players in the business, technical skills that is used to train these AI bots.
So there are times when AI can be a benefit. There is a strict guidance, especially from the IRS and also just from handling personal information for individuals as to not to utilize AI for that. But when it comes to generic handling administrative work inside of a firm, I do feel like it brings more efficiencies and it can add to the deliverable time.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, it’s really hard to replace all that expertise that you have gained over the course, and others like you over the course of your career. But from what I understand, it’s become very complimentary. Rackaye, we’re going to have to leave it there.
Thank you so much for making a few minutes. And look, we look forward to having you back on the program again very soon.
Rackaye Christie, MBA, Manifest Tax Services
Thank you, Jeff. Appreciate your time. Thank you.
