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IRS October 15th deadline: procrastinator's guide

On April 15th, procrastination was easy: just send in a half-page extension request - and you get an automatic 6-month extension, no questions asked. The bad news: 6 months from April 15th is October 15th - which is now.

Come October 15th, and there are no more extensions available. Your paperwork is still not ready, and will not be ready by October 15th. Where does it leave you? What to do?

First, you are not going to jail. Well, technically, if you do not file your tax return by October 15th, it would be criminal - however, nobody will really care unless you have a HUGE profile and your jail time (like that of poor Paris Hilton) would create a headline. Last time I checked, few Houston investors had the status (and the looks) of Miss Hilton - including the invaders from California.

Jail aside, how much trouble is it to miss October 15th? Well, the first question to answer is:

Did you file an extension request in April?

Because if you did not apply for an extension in April, it is too late anyway. By now, you already incurred most of the possible penalties. The longer you wait, the worse it will become, but the deadline itself is meaningless for you.

Assuming you did have a valid extension, the second question is:

when your tax return is finished, are you going to owe money to the IRS

- or will you be getting some money back? Tough question to answer when you do not have your paperwork in order. You will either have to estimate yourself or ask an accountant.

If you're lucky, your calculations will show an expected refund from the IRS. In this case, missing the deadline is not too dangerous. Why? Because the IRS penalties are calculated as a percentage of what you owe them. Since you owe them nothing, there will be no penalties when you finally submit your tax return - even though it will be past the deadline. Missing the deadline can still create some complications, so do not procrastinate much longer - but at least no worry about penalties.

Missing the October 15th deadline when you owe money to the IRS - now, this can be bad. Sending a payment to the IRS is a good idea: it will stop additional interest and the "late payment" penalty. Unfortunately, it will not solve a bigger problem - the 25% "late filing" penalty. If your tax return is not submitted by October 15th, you will be stuck with paying an extra 25% on top of what you already owe - even if you had an extension in April. In fact, your extension will be wasted.

The solution can be to prepare your tax return based on preliminary and incomplete information. Let's call it a "best guess" tax return. Then later, when you get your ducks in a row, you can follow up with an "amended" return and correct your mistakes if necessary. This approach has a catch: your return should still be "close enough" - meaning that it should be based on legitimate estimates. Simply throwing in some random numbers using the famous WC ("who cares") accounting method may put you in hot water.

A little-known fact is that the IRS can provide you with the most critical data, such as your various W2 and 1099 forms - if you misplaced or never received them. This is because the IRS receives (and keeps!) copies of all these forms. In April, this data was not yet available. By now, it is ready. Even better, accountants who are part of the innovative "e-services" program can download this information 24 hours a day - with your permission of course. They can then prepare a preliminary tax return based on this IRS-supplied data and save you from trouble.

Finally, what to do when you know that you owe the IRS money but you cannot afford to pay? First, make sure that you submit the tax return by the October 15th deadline. At the least, you will minimize penalties and interest. As strange as it sounds, it is MORE important to send the paperwork than to send money. Sure enough, pretty soon the IRS will ask for the money. In most cases, you can set up a payment plan with the IRS. It is not cheap to borrow from the government, but it is better than have the government collecting from you. They have a lot of power to collect. In more complex cases, you may want to consult an accountant. Preferably, a good one.

Now, check your calendar and get started. On October 15th, the lines at the post office will remind you of Christmas - but with far less excitement.