When filing taxes, it's essential to ensure that you've taken the time to complete your tax return fully and accurately to save yourself money. However, what do you do when the deadline to file your taxes is quickly approaching, and you've run out of time to complete a thorough review?

Tax extensions and IRS installment agreements are both great tools to use when you need extra time to file your taxes, but don't necessarily have the cash to pay off your estimated tax debt. In this post, we will show you how to use both tools to your advantage to help save you money and time.

Tax Extensions: Buying Extra Time to File

If the April 15th deadline to file your tax return is quickly approaching, and you haven't had time to review your tax return, you'll want to file for an extension. Thoroughly reviewing your taxes and looking for potential credits and deductions is one of the best ways to save money on your taxes.

Filing an extension gives you a six-month extension to file your tax return, allowing it to be submitted no later than October 15th.

How to File a Tax Extension

Filing a tax extension is relatively easy thanks to Irsextension.online's easy-to-use online software. To file your extension, all you need to do is:

1. Estimate your tax liability: You'll need to have a good estimate of how much you expect to owe in taxes for the year.
2. Complete the online extension form: Filing online is the quickest way to file an extension and have it approved. It helps you avoid any errors and removes any confusion surrounding Form 4868.
3. Submit your extension and pay any taxes owed: When submitting your tax extension, you'll also need to pay any taxes you anticipate owing the government.

For a complete guide on submitting tax extensions, check out our tax extension guide.

Penalties Associated with Filing a Tax Extension

If you do it correctly, there should be no penalties associated with filing a tax extension. By filing a tax extension and paying your estimated tax burden by April 15th, you'll avoid the following:

• Late-filing penalty: 5% of your total taxes owed per month the taxes remain unfiled. The penalty maxes out at 25% of your total tax debt.
• Late-payment penalty: 0.5% of your total tax debt per month the debt remains unpaid. This also maxes out at 25% of your total tax debt.
• Interest: Interest accrues on unpaid penalties and taxes for as long as they remain unpaid.

The issue comes when you file an extension but can't afford to pay your taxes. While filing an extension will help you avoid the late-filing penalty, you need to do something to limit the damage of the late-payment penalty and accruing interest.

IRS Installment Agreements: Additional Time to Pay

The IRS installment agreement is a compliment to a tax extension in that it gives you extra time to pay your taxes owed while minimizing the penalties applied to your tax debt.

What is an IRS Installment Agreement?

An IRS installment agreement is essentially a payment plan with the IRS that's set up to pay down your tax debt when you can't afford to pay it all at once. There are two types of installment agreements:

• Short-term: Allows you to pay your tax debt in 180 days or less in monthly installments. You can apply online for this if you owe less than $100,000 in combined taxes, penalties, and interest.
• Long-term: If you need more than 180 days to pay your tax debt and you owe less than $50,000, you can apply online for a long-term payment plan.

What are the Benefits of an Installment Agreement?

If you have to pay the IRS the taxes you owe anyway, you may be wondering why even bother setting up an installment agreement in the first place. There are several benefits to setting up the agreement:

• Additional time to pay - The main benefit of an installment agreement is that it gives you extra time to pay your taxes if you can't afford to pay them as a lump sum when filing your return.
• Cuts the late payment penalty in half - That's right! Most of the time, the IRS will reduce the late-payment penalty to 0.25% of your taxes owed as opposed to 0.5% of your taxes owed when you set up an installment agreement.
• Avoids further collection steps - Perhaps most importantly, setting up an installment plan helps put a pause on any further collection steps by the IRS as long as you stick to the payment plan. That means you avoid tax liens, seizure of assets, and pesky notices from the IRS.

How to Set Up an Installment Agreement

Setting up an installment agreement with the IRS is fairly simple as long as you meet the requirements. All you need to do to apply is to go to the IRS Website and start your application.

In order to complete your application, you'll need the following:

• Photo ID
• A valid e-mail address
• Your social security number

If you don't qualify for an installment agreement or it doesn't appear to be the best option for you, check out our post on handling taxes when you can't pay by the extension deadline for other options in dealing with tax debt.

Tax Extensions and Installment Agreements

As you can see, tax extensions and installment agreements are a great way to help minimize and eliminate penalties if you can't file or pay your taxes on time. Don't wait until the last minute to request an extension; get started filing your tax extension today!