5 Things to Know About Filing a Federal Tax Extension
- Filing a federal tax extension gives you an additional 6 months to file your tax return and helps avoid late filing penalties.
- Anyone required to file taxes can submit a federal tax extension, including individuals, businesses, and other entities.
- While a tax extension gives you more time to file, taxes owed are still due by the original deadline. You need to estimate and pay any owed taxes on time to avoid penalties.
- The failure-to-file penalty is 5% of unpaid taxes per month up to 25%. The failure-to-pay penalty is 0.5% per month up to 25% as well.
Filing a federal tax extension can be very useful for people who simply cant get everything prepped and ready by the April 15th tax deadline every year.
But when your taxes are more complicated, or youre waiting on certain tax forms, or you just havent gotten around to filing by the due date, its easy to get worried about filing your taxes on time.
That is what federal tax extensions were created for.
Before you decide whether or not a tax extension might be right for you, here are 5 important things to know:
1. Filing a Tax Extension Gives You an Additional 6 Months to File Your Return.
Its always a good idea to be familiar with the parameters of a tax extension before you file. Filing a tax extension gives you an additional 6 months to file your tax return.
Whether you have a complicated tax situation, or you simply ran out of time to file your taxes, a tax extension can be a huge help.
You can complete the filing process using a Form 4868. This includes tax filers who use fiscal year filing, or have an unusual filing deadline.
2. Filing a Tax Extension Helps You Avoid Late-Filing Penalties.
When you dont file your taxes on time, or fail to file a tax extension, you could pay penalties that really add up. Penalties are not just charged to unpaid taxes, but also to unfiled tax returns.
This means if you are required to file a tax return and fail to do so, you will pay a penalty. This penalty is called the Failure to File Penalty. The IRS sends out a letter when they realize you failed to file.
The penalty is calculated at 5% of any taxes owed, and maxes out at 25% of unpaid taxes.
The minimum failure to file penalty for any taxes due that are more than 60 days late is $435, or 100% of the tax required to be shown on the return, whichever is less.
Penalties will also accrue interest until they are paid in full.
3. Anyone Can File a Federal Tax Extension
Just about anyone who is required to file a federal tax return is allowed to file a federal tax extension. Businesses, corporations, resident aliens, estates, and other entities all have federal extension forms they can file.
In MOST cases, Form 4868 is what is used to file a tax extension. As long as your information is correct, and the extension is filed on time, the application should be accepted.
If you are not an individual tax filer, be sure to check the required forms, or work with a professional to ensure you file the proper form for your entity.
4. Aim to File the Extension on Time
In order to be eligible for a tax extension, it is your responsibility to make sure it is filed on time. The typical tax filing deadline is April 15th each year. In 2023, tax extensions are due by April 18th for traditional filers.
If you know you will need an extension, youll want to file it early so you dont miss the deadline.
5. You Still Need to Pay Your Taxes On Time
Lastly, many people think that filing a tax extension also gives them an extension on their tax payments. This is a common misconception. The federal tax extension grants you extra time to finish filing your taxes, however, any taxes due still need to be paid by the original filing deadline.
The failure-to-pay penalty is .5% for each month, or part of a month, up to a maximum of 25%, of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full.
While you may not know your exact taxes due at that time, youll want to make an estimated payment based on the information you have.
However, there are some exceptions to this rule, which require proof of hardship and a separate form to request a payment extension with the IRS.
Prepare for the Upcoming Tax Season
With a new year upon us, tax season is quickly approaching. If youre not ready to file your taxes, consider filing a federal tax extension. Remember to file your extension request prior to the deadline, and to pay any estimated taxes at that time, too.
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