Did you file an extension for your 2023 federal tax return? If so, the six-month grace period to get your taxes filed without additional failure to file and late payment penalties is rapidly closing. In fact, October 15, 2024 is just around the corner, so now is the time to make sure that you do file your return by this date.

Doing so will take it off your to-do list and reduce your tax penalty burden if you already have one to contend with. Many taxpayers, freelancers included, are not clear about what an extension on their taxes really means, and how to handle it. To help cut through the confusion, here are some facts about what an extension on your freelance taxes means, and how you can navigate it effectively for your personal and freelance taxes. 

An extension is simply an agreement between you and the IRS that as long as you file on or before the 6-month mark after the original deadline, you will not be subject to failure-to-file penalties. 

In reality, an extension is not an extension on the tax payment you owed at the April original filing deadline. Your 2023 tax liability was due, in full, on April 15, 2024. Unless. That is, you took action when you realized you couldn’t pay and submitted IRS Form 4868 to extend your tax return.

Keep in mind that if you didn’t file an extension and you didn’t make a payment with your extension or you paid after April 15, 2024, the IRS may assess a late-filing penalty of 5% per month of the tax owed and a late payment penalty of 0.5% a month of the tax due. The maximum late filing penalty is 25% and the late-payment penalty maximum is 25%.

Make sure your tax records are complete, current, and secure.

If you are missing information or need updated or corrected forms in order to file your taxes, it is imperative to use the next few weeks to get the information you need (the tips below can help) so you can make the tax return extension deadline on October 15, 2024. All records must be kept for a minimum of three years after filing your taxes, these include but are not limited to:

• W-2s or Form 1099s, be sure to contact the issuing organization and request the missing documents. This also applies if you received an incorrect W-2 or Form 1099. If you do not receive the missing or corrected form in time to file your tax return, you can estimate the wages or payments made to you as well as any taxes withheld. If you receive the missing or corrected Form W-2 or Form 1099-R after filing your return and the information differs from your previous estimate, you must file Form 1040-X, Amended U.S. Individual Income Tax Return.
• If you receive an incorrect Form 1099-G for unemployment benefits, you should contact the issuing state agency to request a revised Form 1099-G. 

If you aren’t sure of an amount or are still waiting for documents, remember, you have three years from the due date or the date you filed to amend your tax return, if you have a refund due. If you have no refund due, you have more than three years to file an amended tax return, Form 1040X, however, you will be subject to interest and penalties on the outstanding balance. 

Did your state experience a natural disaster this year? You may have an automatic extension.

Another potentially unexpected filing extension may be valid for your freelance tax situation if you are in a federally declared disaster zone. If this is the case (you can look to see if your state has any federal disaster zones identified, you may be eligible for this extension. The Federal Emergency Management Administration has a listing of this information at Disasters and Other Declarations | FEMA.gov.

Failure to file your tax return extension may impact your passport.

The IRS is serious about delinquent tax filers! If you have significant unpaid federal tax debt (including assessed penalties and interest on your extended taxes) totaling more than $62,000 (adjusted yearly for inflation) from obligations including U.S. individual income taxes, trust fund recovery penalties, business taxes for which taxpayers are personally liable for and other civil penalties, you may be at risk for losing your passport, too.

The IRS clearly states that if you have this type of serious tax debt, they want you to stay close to the United States and will take extreme measures such as garnishing your passport.

Take action now and take care of your extended freelance tax return!

With the October 15 tax extension deadline just a few weeks away, do not delay getting your extended freelance taxes filed now. The time you spend today taking care of this will allow you to reduce your ultimate time, financial, and stress related to taxes so you can focus on finishing 2024 strong in your freelance business and file your next annual tax return clear of any additional penalties or previous freelance tax issues.