Top 3 Things You Need to Know About Tax Filing Extensions
There’s a lot of misinformation about tax filing extensions regarding who they are for, how to get one, why to get one and what does it actually even mean. Let’s be honest, the IRS doesn’t have a reputation for leniency or handing out favors. So, what’s the deal with extensions? Here are the 3 most important things you need to know.
1. A 6-month extension is automatically granted – if you ask for it by April 15th
You may have heard that extensions are automatic, which is true. But, you have to ask for one. The IRS gives you multiple ways to do that. First you can e-file an extension right online for free or you can fill out Form 4868 and mail it to the address listed on the form based on where you live. There’s also a third way – when you pay all or part of your estimated income tax due you can indicate that it’s for an extension through the IRS’s online payment system.
This may leave you wondering, why would I make a payment if I’m filing an extension? Which leads us to our extremely important second point.
2. Extension to file does NOT mean an extension to pay
This may feel like a dirty trick but, the IRS is comfortable with not having all your paperwork for 6 additional months, but they are not comfortable with not having your money for an additional 6 months. You’ll be responsible for interest if you don’t pay by April 15th – filing extension or no filing extension. Late payments (all payments after April 15th) are usually 0.5% of what hasn’t been paid, then 1% if it’s not paid within 10 days of the IRS’s notification. Recurring charges will continue to accumulate until a maximum of 25% is reached.
You can learn more about the IRS’s penalties for individuals here.
3. Reasons you might want to file for an extension in the first place
Not getting an extension on the payment begs the question – why file for an extension at all? Well there are several good reasons.
It gives you more time to get your documents in order. When you file your taxes, that may not be the end of the story. If you have any IRS Audit Red Flags because you rushed through your paperwork to meet the deadline and provided incomplete or inaccurate information you may become subject to an audit. You’d be better off to file the extension, get your paperwork in order and file correctly.
You have a major life event that stops you from filing. Life happens regardless of tax season. If something major happens in your life that prevents you from hitting that deadline – file the extension. It gives the IRS a heads up that you plan to get it to them as soon as you can.
It just takes the pressure off. Maybe you hate deadlines, procrastinate or just didn’t think of it until the last minute. The IRS doesn’t ask you to explain why you need the extension, You just have to ask for one through one of the three ways listed in #1. Don’t sweat it, if you need more time – take more time.
The looming question is, what happens if you don’t file by April 15th but you also don’t submit a request for an extension?
Well, at that point you’ll accrue the penalties outlined in #2 as well as a 5% per month late filing penalty. The extension is basically a way of letting the IRS know that you’re aware you’re late submitting the paperwork, you need a little more time, and you’ll have it to them within 6 months, by October 15th. If you don’t let them know, the IRS assumes you’re just not planning to file and penalizes you accordingly. If you are in a jam, file the extension because the late payment fee is a lot less than the late payment and late filing fees combined.
If you have any questions, reach out to us. We are happy to help you with all things taxes. Call 603-432-8291 or make an appointment right online at http://tslnh.com/schedule-an-appointment/.
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