Top 10 Things To Know About Filing A Tax Extension

There are a number of myths out there about filing a tax extension beyond the April 15th deadline.  Many taxpayers incorrectly assume that there are penalties involved or it increases their chances of being audited by the IRS.   In reality, filing for an extension can be a great way to give yourself more time to organize your financial documents, identify tax strategies to implement, and ensure that the information on your return is accurate. But before you file the extension, here are a few things you should know.......

1: You must file your extension by April 15th

To apply for an extension, you must file the appropriate paperwork by the April 15th filing deadline. However, filing for an extension does not extend the due date for payment of any taxes owed.

2: What is the extension deadline?

The tax extension filing due date for individual returns is October 15th in most years, but this can vary by a day or two each year, depending on what day of the week the tax deadline or extension deadline falls on.  If they fall on a Saturday, Sunday, or Holiday, the IRS will typically move the date to the next business date.

3: How do you file an extension?

You or your accountant can file your extension electronically.  This is the quickest and easiest way to file an extension.  If you prefer to file your extension by mail, you can do so by filling out Form 4868 and sending it to the IRS.

4: What if you owe taxes?

If you owe taxes, it’s important to remember that filing for an extension does not extend the due date for payment. At least 90% of the tax owed for the year must be paid with the extension.   Any remaining balance can be paid by the extended due date, although it will be subject to interest (not penalties).   If you do not pay at least 90% of the balance owed, then you will be subject to interest and late payment penalties until the tax is paid.

If you pay your taxes after April 15th but before October 15th, you may be subject to a "failure to pay" penalty. This penalty is typically 0.5% of the tax owed for each month that the taxes remain unpaid, up to a maximum of 25%.

If you pay your taxes after October 15th, the “failure to pay” penalty increases to 1% per month, up to a maximum of 25%. In addition, you may also be subject to a "failure to file" penalty of 5% per month, up to a maximum of 25%.

If you can't pay the taxes due by the April 15th deadline and don't file an extension, you may be subject to both the “failure to pay” and “failure to file” penalties. This can add up to a substantial amount, so it's important to file an extension if you can't pay your taxes by the April 15th due date.

5: What if you are due a refund?

It will not take longer for the IRS to process your refund, however since your return will be submitted at a later date, your refund will be received later than if the return was submitted by April 15th.

6: Are You More Likely To Get Audited By The IRS?

No, there is absolutely no correlation between the filing of an extension and audit risk.  However, filing an incomplete or incorrect tax return which necessitates the filing of an amended tax return, can increase your audit risk.

7: Do You Have To Give A Reason To File An Extension?

When you file for an extension, you don’t have to give a reason for why you need the extra time. The IRS will accept your extension request without question.

8: Do You Still Have To Make Estimated Tax Payments?

If you make estimated tax payments each year, filing an extension for the previous tax year, does not extend the due date of making your estimated tax payment for the current tax year on April 15th, June 15th, September 15th, and January 15th. 

The penalty for not making estimated tax payments is 4.5% of the unpaid taxes for each quarter that the taxes remain unpaid.

9: IRA Contribution Deadline

Even if you file an extension, IRA contributions must still be made by the April 15th tax deadline.

10: Extra Time To Make Contributions to Employer-Sponsored Retirement Plans

While putting your tax return on extension does not extend the IRA contribution deadline, it does extend the deadline for self-employed individuals making contributions to their employer-sponsored retirement plans, which are not due until a tax filing deadline plus extension.  This would include contributions to Simple IRAs, SEP IRAs, Solo(k), Cash Balance Plans, and employer contributions to 401(K) plans.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.