- Personal Finance
Filing a Tax Extension: How to Do It, How Much Time Does It Buy You, Penalties for Late Payment & More
Information to Help Late Tax Filers
If you’re like a lot of Americans, April 15th rolls around all too soon. The good news is, you can file an extension – which will give you anywhere from four to six additional months to file your taxes. Before you jump for joy though, following are some things you should know about filing a tax extension (isn’t this always the case with the good ole IRS).
Filing an Extension DOES NOT mean you have more time to pay
An extension is really just time allotted for you to get your recordkeeping in order. It does not mean you get an extension of time to pay. You should send in an estimated payment (or an exact payment if you know how much you owe) with your extension form.
Penalties and Interest Start Accruing on April 16th
Penalties and interest on any amounts owed start accruing on April 16th (yes, the day after tax day) EVEN IF you don’t file your taxes until months later.
So, if you think you’re going to owe, send in as much of payment as you can on the amount you think you’re going to owe.
Tip for Estimating Taxes Owed: Look at last year’s return. If your income hasn’t changed dramatically, send in what you owed last year (or a little more to be on the safe side). Otherwise, you could find yourself owing thousands, like Pamela Anderson and a host of other celebrities who owe back taxes.
Why You Should File as Soon After April 15th As You Can
I file as soon as possible after April 15th, for the following two reasons:
(i) Owing Taxes: I usually owe, so I don’t like to take too much of a hit with penalties and interest, in case I underestimated how much I owe. As a freelancer, my income does change dramatically from year to year. Hence, underestimating how much I owe can cost me big if I wait to file four months from April 15th, instead of a couple of weeks from this date.
(ii) Peace of Mind: While I rarely make the April 15th deadline for filing, I try not to let it drag out for too long because it’s weighs on me. So I get it out of the way as soon after this date as I can (you’d think I’d learn and get it in on time, right?).
I’m getting there; I’m getting there! But, I digress.
Penalties and Interest Can Be Quite Steep: Exactly how steep? As much as 25%. Ouch! Following is how it’s explained on the IRS's site:
The penalty is usually 5% of the amount due for each month or part of a month your return is late. The maximum penalty is 25%. If your return is more than 60 days late, the minimum penalty is $135 or the balance of the tax due on your return (emphasis added), whichever is smaller.
Which Form to Use to File a Tax Extension
It’s Form 4868, The Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This form is used to extend the following tax returns:
- Form 1040
- Form 1040A
- Form 1040EZ
- Form 1040NR
- Form 1040NR-EZ
Payment Methods Accepted: The IRS offers a variety of ways to pay your tax bill. You can pay via:
Electronic Withdrawal: This can be from your checking or savings or savings account.
Credit or Debit Card: To pay your tax bill by credit or debit card, you have to call a toll-free number, or you can do it online. Note: Fees may apply.
Check or Money Order: It should be made out to the “United States Treasury,” NOT the IRS (although I’m sure in the past I’ve sent a check addressed like this and it was cashed. But, try to follow the guidelines.
NOTE: Cash is never accepted.
Learn How to File a Tax Extension
Learn everything you need to know about how to file a tax extension. It’s quick and easy to do so; it’s only one form with just a few questions. As I know the procedure, it usually takes me less than a minute to fill it out and slip it in the envelope to be mailed.
Filing a tax extension gives you the extra time you need to get your tax house in order so next year, you can file on time (note to self).
Post Office Extended Hours on Tax Day
You should know that in most jurisdictions, post offices stay open late on tax day. When I lived in New York City, it was open until midnight. So even if youre reading this at 7 or 8 in the evening on tax day, you may still have time to get your extension postmarked for today.
Are You a Freelance Writer or Other Type of Independent Contractor?
Get some info that that can help you in Freelance Writers: Tax Advice from a Professional.