Year-end tax guide: Your filing and payment requirements

2015 Year-end tax guideTaxes aren’t just about using planning strategies to affect how much you’ll owe. You and your business also have various filing, reporting and payment responsibilities. Some of the most important filing due dates and payment deadlines are detailed in the accompanying tables.

Filing deadlines
The IRS offers automatic extensions for many of the biggest annual filing deadlines, including annual income tax returns for corporations, individuals, partnerships, trusts, estates and nonprofits. If you’re not going to meet a filing deadline, don’t bury your head in the sand. Filing for an automatic extension is typically painless and can spare you penalties for missed deadlines. But remember that filing an extension extends only the deadline for filing your return, not for paying tax. You must pay any outstanding balance in your income tax in full with your extension to avoid interest and potential penalties.

Tax law change alert: Filing deadlines changing
The filing deadlines for your 2015 returns remain the same, but big changes are coming soon for 2016 returns. Legislation was enacted that modifies the filing deadlines so that partnership and S corporation returns will be due March 15 (or two and a half months after the tax year ends) and individual, C corporation and trust returns are due April 15 (or three and a half months after the tax year ends). Automatic six-month extensions will eventually be available for all returns except trusts, which will have five-and-a-half-month extensions. The changes will generally be effective for tax years beginning in 2016, but calendar-year C corporations will get only a five-month extension until 2026, and C corporations with tax years ending on June 30 will use their current filing deadlines until 2026. The provision will also change several other filing deadlines, including foreign financial accounts and employer plan reporting.

Q: What filing responsibilities do I have as an individual?
You must pay tax throughout the year through either withholding or estimated tax payments. You must file an annual income tax return if your income is high enough, and you must pay your balance in full by April 15 even if you extend your return. You may have additional responsibilities if you have a foreign financial account, run a business or have household employees.

Q: Should I file on paper or electronically?
Some businesses are now required to file electronically, but individuals are not. Filing electronically will typically get you a refund faster, and the IRS can often identify a problem up front that would take a long time to clear up if filed on paper.

Q: What do I do if the IRS contacts me?
Don’t panic and don’t ignore it.  Some notices are sent in error, and others raise issues that can be corrected easily. If you have a more serious issue, the IRS notice will give you a full accounting of your rights. Read them and contact the IRS or a tax professional if needed.

Annual return due dates for calendar year taxpayers (click to view chart)
Information return deadlines in 2016 (click to view chart)
Payroll tax remittances (click to view chart)

Tax law change alert: No more automatic extensions of W-2
The IRS has issued temporary regulations ending its practice of allowing automatic extensions for filing Form W-2 with the IRS. Employers must generally file employee wage statements to the IRS by Feb. 28 if using paper (Feb. 29 in 2016) or by March 31 if filing electronically. Under the new regulations, 2016 is the last year in which the IRS will grant automatic 30-day extensions. The IRS also indicated it will be reluctant to grant nonautomatic extensions under the new rules in 2017. The change is spurred by the threat of identity thieves, who often file fraudulent electronic refund claims early in the tax filing season before the IRS has enough data-matching information to reject the claims.

Reporting foreign financial interests
You have additional reporting responsibilities if you had a financial interest or signature authority over any foreign bank or financial accounts that were worth more than $10,000 in aggregate at any time during a calendar year. You must report these interests on a Report of Foreign Bank and Financial Accounts (FBAR) by June 30, though this is set to change. The FBAR is not filed with a federal income tax return, and there is generally no extension of time to file, but Congress has just passed legislation changing the rules. FBARs covering the 2016 calendar year will now be due on April 15 with the individual return, and a six-month extension will be available.

You also may have reporting responsibilities if you own certain foreign financial assets (including bank accounts reported separately on the FBAR) that were worth more than $50,000 in aggregate on the last day of the tax year or more than $75,000 at any time during the tax year. You must report these assets on a Form 8938, Statement of Specified Foreign Financial Assets, which is filed with your annual federal income tax return.

Paying your tax
Although you don’t file your return until after the end of the year, remember that you must pay tax throughout the year with quarterly estimated tax payments or withholding. Any shortfall will generate a nondeductible penalty.

For your individual income tax return, if your adjusted gross income (AGI) is more than $150,000, you generally can avoid penalties by paying at least 90% of your eventual 2015 tax liability or 110% of your 2014 liability through withholding and estimated taxes (taxpayers with $150,000 or less in AGI need to pay only 100% of 2014 liability). If your income is irregular because of bonuses, investments or seasonal income, consider the annualized income installment method. It allows you to estimate the tax due based on income, gains, losses and deductions through each estimated tax period.

Estimated tax payments for individuals
(click to view chart)

Planning tip: Make up an estimated tax shortfall with increased withholding
If you’re in danger of being penalized for underpaying tax throughout the year, try to make up the shortfall through increased withholding on your salary or bonuses. Paying the shortfall through an increase in your last quarterly estimated tax payment can still expose you to penalties for underpayments in previous quarters. But withholding is considered to have been paid ratably throughout the year. So a big bump in withholding on high year-end wages can save you in penalties when a similar increase in an estimated tax payment might not.

Responding to the IRS
You tried meeting your deadlines, following the rules, saving your receipts, and documenting your expenses, time and income, but still missed something along the way. If you find an error before the IRS does, correct it. Quickly clearing up reporting or filing errors can save you a lot in penalties.

If you do receive a notice from the IRS, don’t panic. Notices from the IRS often come with penalties, but there are options for abating them. See our table for details on a few of the many penalties the IRS can  impose and our planning tip for options for abating a penalty.

Business perspective: Interest and penalty refunds
The IRS had its hands full even before all of the recent budget cuts, but now may be more likely than ever to make an error when computing interest and penalties. The IRS is well-known for struggling to get the complex math correct when calculating how interest should be applied when a business has multiple audit adjustments, penalty assessments and/or refund claims.

You may find significant refunds by checking IRS numbers with a professional who specializes in interest and penalty netting. The businesses most likely to have a refund waiting have been audited more than once by the IRS, have a history of overpayments on original returns, have been assessed penalties, or have overlapping refund claims and IRS assessments.

Tax law change alert: Information return penalties increasing
Lawmakers enacted legislation this year that increases penalties across the board for incorrect, late or missed information returns, including Forms 1099, 1096 and W-2. In most cases, the per-return and maximum penalties are at least doubling. The penalty for failure to provide payee statements is increasing from $100 per return to $250, with the $1.5 million annual maximum increasing to $3 million. The lesser penalties for correcting errors within 30 days and 60 days are also increasing by similar amounts, as are the penalties for small taxpayers and intentional disregard.

Common filing and payment penalties (click to view chart)

Planning tip: Abate a penalty
You don’t have to accept an IRS penalty on its face; there are many opportunities to abate it. The IRS can impose penalties for a variety of failures by a taxpayer. Sometimes these notices can be resolved with a simple letter to the IRS explaining that the taxpayer’s mistake was due to reasonable cause. This is essentially an argument that the taxpayer was acting responsibly and the mistake was unintentional. It can also mean that the penalty should be abated because the mistake was made by someone other than the taxpayer, like a tax adviser.

A taxpayer can rely on several arguments to abate penalties, including the following:

  • First-time abatement — If you’ve never been penalized, you may be eligible for a first-time abatement. This program won’t free you from every type of penalty, but for many common failures, the IRS will waive the penalty under this program.
  • Corrective measure — If you have been penalized in the past, you can still show that you’ve made changes that have prevented failures in subsequent years.
  • Acted reasonably — You may also be able to show that you’ve exercised ordinary business care and prudence, and that the error is isolated and inadvertent.

The IRS’s own policy is to impose penalties to enhance voluntary compliance. A taxpayer who has been compliant aside from an isolated error isn’t going to become more compliant based on a penalty. Taxpayers may be able to demonstrate that penalties in these cases don’t serve the IRS’s policy of voluntary compliance.

David Auclair
T +1 202 521 1515

All FAQs
Terms and definitions
Download the PDF

<< Previous pageNext page >>

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.