The April tax deadline is quickly approaching, so if you haven’t started yet, it’s a good idea to buckle down. While most people have pretty straightforward returns, crypto assets introduce some unique challenges. And in some cases, you may need more time to file your return or pay off the entire balance.
In this article, we’ll look at some of the most common questions surrounding the April tax deadline and tips to help you file and pay.
A Brief Crypto Tax Recap
ZenLedger’s Crypto Tax Guides go into a lot of detail about how crypto taxes work both at a high level and in specific situations. For example, you’ll find everything from how to value a non-fungible token (NFT) to the tax treatment of DeFi income. But in this section, we’ll briefly recap how the IRS treats crypto and cover some high-level points.
The IRS treats crypto assets as “property” subject to income and capital gains taxes. In other words, it’s treated the same as stocks, bonds, and other assets for capital gains purposes. If you receive crypto as income for mining or interest, you may owe income tax. But of course, the amount you pay depends on your circumstances.
Generally, you only owe capital gains tax when you sell or exchange cryptocurrencies – including when you sell one cryptocurrency for another. However, you don’t owe tax on crypto you bought (with fiat currency) and haven’t sold, crypto assets you transfer between wallets you own, or assets you gift or donate to others.
ZenLedger offers the easiest way to file your crypto taxes. Our platform automatically aggregates your transactions across wallets and exchanges, computes your capital gains and losses on Form 8949, and carries over the appropriate amounts to Form 1040 Schedule D, Schedule 1, and/or Schedule C on your behalf.
What is the deadline for 2022 taxes?
The federal income tax deadline for the 2022 tax year is April 18, 2023. While the usual deadline is April 15, the extended deadline is due to Washington D.C.’s celebration of Emancipation Day.
State income tax deadlines for the 2022 tax year vary, so you must check with your state’s tax authority or a tax professional to ensure you file on time. For example, Iowa’s tax deadline is May 1, 2023, giving taxpayers a little extra time to file.
What happens if you miss the deadline?
Most taxpayers are eager to file their taxes and get their refund quickly. But, if you’re entitled to a refund and miss the deadline, the only penalty will be a delay in receiving your refund.
If you owe money to IRS, you could face two penalties:
- The “failure to file penalty” is typically 5% of the unpaid taxes per month or part of a month that the return is late, up to a maximum penalty of 25% of the due taxes.
- The “failure to pay penalty” is usually 0.5% of the unpaid taxes per month or part of a monthly, up to a maximum of 25% of what you owe.
If you file your taxes on time, you can avoid the “failure to file penalty” even if you don’t make any payments. So, it’s always best to file something even if you can’t afford to pay your taxes.
What is the tax extension deadline for 2022?
You can file for an automatic extension by completing and submitting Form 4868. On the form, you must estimate your tax liability and disclose the payments you’ve already made. While you will still incur the “failure to pay penalty” if you don’t make a payment before April 18, you can avoid the higher “failure to file penalty” with the extension.
The six-month tax extension gives you until October 16, 2023, to submit your final 2022 tax return.
If your estimated tax liability on your extension differs substantially from the actual tax liability you report on your tax return, you may be subject to penalties and interest on the unpaid tax. However, the IRS may be more lenient if your estimate is close to the actual amount owed (at least 90%) or if you can show reasonable cause for the difference.
What are the due dates for 2023 estimated taxes?
You must generally pay at least 90% of the tax you owe for the current year or 100% for the prior year’s tax (whichever is smaller) through withholdings or estimated tax payments. The threshold is even higher for those earning more than $150,000, who must pay 90% of the taxes they owe or 110% of the prior year’s tax.
If you generate crypto income and don’t withhold taxes, you may need to make quarterly estimated payments to ensure you meet these criteria. Form 1040-ES can help you determine if you need to make estimated payments and how much you should pay.
The quarterly estimated tax due dates are:
- April 18, 2023
- June 15, 2023
- September 15, 2023
- January 16, 2024
Does the IRS offer a payment plan?
The IRS offers various payment plans and options if you cannot pay your taxes in full. Generally, you must be up-to-date on your tax filings and have exhausted all your other payment options before you qualify.
There are several possible options:
- Installment Plans – These plans enable you to pay your tax debt in monthly installments. The payment amount depends on the tax debt and length of the payment plan and may incorporate interest and penalties on the unpaid balance.
- Offer in Compromise – These plans enable you to settle your tax debt for less than the due amount. Generally, you must meet specific eligibility criteria and demonstrate that you cannot pay through an installment agreement or payment plan.
- Payment Delays – You may request a delay in collecting a tax debt if you’re experiencing financial hardship or other extenuating circumstances. However, interest and penalties will accrue over time, and the total amount you owe may increase.
If you cannot pay your taxes, it’s a good idea to contact the IRS or talk with a tax professional to explore your options.
The Bottom Line
The April tax deadline is quickly approaching, so it’s a good idea to get started if you haven’t already. If you find that you need more time, you can file for an automatic extension and pay what you think you owe. And, if you need more time to make a payment, the IRS offers installment plans and other options to help you meet your needs.
If you’re looking for a way to speed up your tax prep, ZenLedger automatically connects with your crypto wallets and exchanges and generates the tax forms you need to file.