Tax Day is tomorrow. And if you’ve waited until the last second to file, don’t worry — the Internal Revenue Service isn’t going to scold you.
In fact, IRS is willing to give you an extension on your federal taxes. Well, kind of.
“The critical thing that people need to keep in mind is that filing for an extension doesn’t mean you don’t have to pay,” says Ed deHaan, an accounting professor at the Stanford Graduate School of Business. “It just means that you’re going to avoid the hefty fees that pile up if you don’t file.”
Here’s what you need to know about tax extensions.
For the majority of Americans who have relatively straightforward tax situations, it probably makes sense to buckle down and get things done by midnight on April 15, deHaan says. But some people may need more time.
“Extensions are for two broad groups of people,” says deHaan: Those who had major life events that took precedence over working on taxes and people who are part of complicated investments or partnerships, which often haven’t distributed tax docs in time for Tax Day.
“Those entities have to produce their taxes so you can produce your taxes,” he says.
No matter which camp you fall into, the IRS will extend your deadline if you ask. The most common way to request an extension is by filing Form 4868, either electronically or by mail, before the April 15 deadline. The other way to get an extension it to make a payment on federal tax you owe using the IRS’ “Make a payment” page.
By requesting an extension, you give yourself a new deadline of Oct. 15 and also avoid the penalty for failing to file your return on time, which is 5% of any unpaid taxes for each month that a tax return is late, up to 25% of your unpaid balance.
As deHaan points out, though, an extension to file is not an extension to pay. Even if you buy yourself more time to get your paperwork done, the IRS wants your money up front. Failure to pay comes with a 0.5% penalty for each month, which can increase to 1% if the agency sends you a notice of intent to levy property.
If you’re the type of person who typically gets a big refund every year, this shouldn’t be a major worry. But if you owe, it you’ll have some work to do calculating what you owe, deHaan says: “To some extent, you end up doing much of your taxes anyway.”
If you do get an extension and have avoided penalties, the good news is, you now have time to collect your documents and possibly hire a tax pro to help — a task that is nigh impossible at this late hour in the tax filing season.
But don’t put your taxes on the back burner, says deHaan.
“A mistake that people make with the extensions is they then sort of mentally think, ‘Well, now I’ve got six months,’ and then they find themselves beginning of October, realizing, ‘Oh, I need to file now,”‘ he says.
Accountants are plenty busy dealing with other extended returns in October, deHaan says, and by waiting, you could once again put yourself behind the 8-ball.
“My advice to people is, if you do extend, don’t check it out of your mind,” he says. “Have a plan in place for when you’re going to get the taxes done.”
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