Your Takeaways:

  • You can get a 6-month extension to file your personal taxes by submitting IRS Form 4868, pushing your deadline from April 15th to October 15th.
  • When filing for an extension, you need to estimate your tax liability and pay any estimated taxes owed by the original April 15th deadline to avoid penalties.
  • Filing an extension on time does not incur any penalties, but you may owe interest and penalties if you do not pay enough estimated tax by April 15th.
  • Filing an extension gives you more time to prepare your return, gather documents, and avoid rushed mistakes, even if you don't expect to owe any tax.

Every year, the IRS sets a specific deadline for your taxes to be due. For most businesses and individuals, the deadline falls right around April 15th. There are some exceptions to that rule for filers who use a fiscal year, or who fall under certain business categories, or when the typical April 15th tax deadline falls on a weekend or holiday. Regardless of the date, sometimes it can be challenging to collect all the data and get your taxes prepared to send by the deadline.

This is where a personal tax extension comes in.

What exactly is a personal tax extension, and what would filing one mean for you? Keep reading to find out all of the important details.

What is a Tax Extension?

According to the IRS, a tax extension is defined as being given an extension to the initial deadline of your tax filing. The extension is 6 months from your original filing deadline. For those whose taxes are due on April 15th, or April 18thin 2023, this means that with an extension, we have until October 15th to get our taxes filed, or October 18th in 2023.

The tax extension allows you more time to gather necessary information, prepare the details, and get the tax forms completed and sent. But what does the extension mean for you in the end?

How Will a Tax Extension Affect You?

How Will a Tax Extension Affect You?

A tax extension filing is meant to offer you the benefit of extended time. The IRS recognizes that by the time you get some of the forms you need, it can be hard to just throw things together. And if your taxes are at all complicated with extra schedules, this can be even more challenging.

Whether you file on your own or use a CPA, you may just need some extra time. That is perfectly fine! You can file a Form 4868 for the additional 6-month personal tax extension or use an online filing service to file your tax extension electronically.

But there are more details to understand. Yes, the extension provides extra time, but you should be aware of precisely how it works.

When you file an extension, the IRS requests that you estimate what your taxes are going to be. You should pay the estimated amount owed by the original tax deadline. You may not have a set amount calculated yet, but paying even an estimated amount will work in your favor.

In addition, you need to be sure to file an extension by the regular due date of your return.

What are the Benefits of Filing a Tax Extension?

In order to discover how a tax extension impacts you, it's important to understand the benefits of filing for an extension. In this section, we’ll look at all the benefits that filing a tax extension can offer. 

Reduce Late Penalties

One of the most obvious benefits of filing a tax extension is that it helps you avoid the failure-to-file penalty so long as you submit a tax extension request by the filing deadline for that year. 

The failure-to-file penalty is assessed for failing to file your tax return or submit a tax extension by the deadline and is assessed at a whopping 5% of the total taxes owed per month that your taxes remain not filed. The penalty does cap out at 25% of your total taxes owed.

Don't forget that even if you do file a tax extension, you still need to pay the taxes you expect to owe. The failure-to-pay penalty is 0.5% of your taxes owed per month for the time your taxes remain unpaid. This penalty also caps at 25% of the total taxes owed.

Additional Time to Look for Credits and Deductions

One of the best ways to save money on your taxes is to make the most out of the credits and deductions that you are eligible for. The problem is that you aren't always eligible for the same credits and deductions every year, and some years, the ones available to the American public change completely!

Therefore, one of the best ways to thoroughly comb through all of the tax breaks available to you is by filing for an extension. That way, you get an extra 6 months to scour through your taxes. Even finding one or two available credits or deductions could save you thousands on your taxes!

Save Money on an Accountant

Speaking of saving money, a good way to look for additional tax savings is by hiring a tax accountant. However, most tax accountants tend to raise their rates around the filing deadline.

If you file for an extension, you can wait to hire an accountant to help file your taxes until later in the year when their rates may go down. However, don't wait until the extended filing deadline, or you might find that their rates have shot back up.

Extra Time to Fund Self-Employed Retirement Accounts

While most retirement accounts must be fully funded by the filing deadline, you may be able to continue funding your tax-advantaged accounts through the extension deadline if you have one of the following types of accounts:

  • SEP IRA
  • Solo 401(k)
  • SIMPLE-IRA

If you have one of these types of accounts and have not met the maximum contribution amount for the year, it's a no-brainer to continue funding the accounts through the extended deadline.

Protect Your Tax Refund

If you're expecting a tax refund, you may wonder, "Why should I file an extension?" While it's true that you probably won't owe penalties for not filing your taxes on time if you're owed a refund, by not filing an extension, you may be risking your return. 

If you haven't filed your tax return within three years of the filing deadline, the IRS is no longer obligated to issue you a tax refund. However, if you file a tax extension, then that 3-year term is extended by six months. Your future self may just thank you!

Get Extra Time to Avoid Mistakes

Making a mistake on your tax return could be detrimental. Even small mathematical errors can add up to big fines and penalties. If the filing deadline is approaching quickly, there's no reason to rush through your Form 1040. Instead, file an extension to get extra time to do a thorough check of your tax return and ensure that you didn't make any errors.

What are the Disadvantages of Filing a Tax Extension?

While there are a ton of pros to filing a tax extension, there may be some downsides as well, depending on your personal tax situation. While a tax extension shouldn’t negatively impact you, it's important to understand some of the results of filing a tax extension that may come as a surprise.

You Don't Get Extra Time to Pay

A tax extension gives you an additional six months to file your taxes, but it does not give you an extra six months to pay your taxes. If you expect to owe taxes to the federal government, you need to pay those taxes no later than the original filing deadline. 

Failing to pay your taxes by the original filing deadline comes with a hefty penalty of 0.5% per month for the time the taxes remain unpaid, with a cap of 25% of the total taxes owed. 

If you need help paying your taxes, check out our article on handling taxes when you can't pay by the extension deadline to learn more. 

Your Refund Will Be Delayed

If you are expecting a refund, then filing for a tax extension will only delay your tax refund. In order to receive your refund, you’ll need to complete and submit your tax return. Therefore, filing later than the filing deadline will only delay your refund. 

If you do end up requesting an extension and are owed a refund, then it's best to file your tax return online. The IRS processes refunds for online Form 1040 submissions much faster than mailed submissions.

You Still Have to Estimate How Much You'll Owe

One of the hardest parts of filing a tax return is estimating how much you’ll owe in taxes. It essentially involves pulling all of your tax documentation and income sources together to figure out if you owe the IRS money or if you can expect a refund. 

Unfortunately, in order to submit a tax extension, you need to have a fairly accurate estimate of how much you'll owe in taxes. A good way to know this is to keep track of your income and expenses throughout the year, or even use last year’s taxes as an estimate, as long as your income hasn’t significantly changed.

Procrastination Can Cause Stress

A tax extension can be a great tool if used correctly. Some of the best reasons to file a tax extension include:

  • Waiting on tax documents to accurately file your return
  • Needing a little bit of extra time to look for credits and deductions
  • Not wanting to rush through your Form 1040 and possibly make errors

If you did procrastinate on completing your tax return, it's not a bad reason to request a tax extension so you don't rush your tax return and potentially miss out on tax savings. However, you shouldn't file a tax extension with an "I'll do it later" mentality.

If you push filing your tax return to October when the extended return is due, then you'll run into the same issue you did in April with twice the stress! There is no second tax extension. Therefore, if you do file an extension, it's best to keep that momentum going and start working on your return immediately after you file the extension.

What Should I Do After Filing a Tax Extension?

If you're trying to look at what a personal tax extension means for you, then you'll want to know what the hours, days, and weeks following a tax extension submission look like. In this section, we’ll look at what you should do following the submission of a tax extension to keep the filing process easy and stress-free. 

Pay Your Owed Taxes

In case you didn't know by this point, you need to pay your taxes when you file your tax extension. That's the first step to a happy and worry-free extension period.

Confirm Your Extension Has Been Accepted

Barring any major errors in submitting, most Form 4868s are accepted by the IRS. If you file your tax extension online, then you should receive an approval notification within 48 hours. 

If you file via mail, you'll need to call the IRS to confirm that your Form 4868 has been received and approved. As we all know, trying to get a hold of the IRS is almost impossible. Therefore, it's much more efficient to file your extension online.

Check Your State Requirements

Most states will automatically extend your state return deadline if your federal extension is approved. However, you should double-check your state's tax website to see if you need to file a separate state extension if you want an extension on your state tax filing, as well.

Collect Any Tax Documents You Need to Complete Your Return

One of the hardest parts of completing Form 1040 is collecting all of the documents you need. While you don't need to start collecting them the minute you file for a tax extension, you should start within a few days of submitting your extension. That way, you’ll have ample time to request documents should you not be able to find them.

Some of the most common documents people need to file their Form 1040 include:

  • Last year's tax return
  • Income statements like W-2s or 1099s
  • Proof for claiming any credits or deductions
  • Proof of estimated tax payments

Submit Your Tax Return When You're Ready

While you don't need to rush to submit your tax return after filing for a tax extension, you also don't need to wait until the extended filing deadline to file. Once you've had time to thoroughly complete your Form 1040, go ahead and submit it so you don't have to think about taxes for another year.

Simple Steps to File Your Tax Extension

Simple Steps to File Your Tax Extension

So, how exactly do you file an extension? Its easy! We can help you with the process. An extension is filed using Form 4868 from the IRS. If you use a tax preparer, or a tax software, they can help.

There are three main ways to file your extension.

  • Do it yourself through a tax software
  • Use a CPA or tax professional to file
  • Print and mail the extension form to the IRS

How you decide to go through the process is up to you. However, it can be a good idea to have a secondary resource to help with the details. Remember that you need to pay estimated taxes when you file the extension. If you anticipate a refund, you wont need to pay anything now.

File the tax extension on time to avoid any penalties on a late filing of your return.

Will I Have to Pay Penalties for Filing an Extension?

Many people look down on the possibility of filing an extension. But the truth is that this is a valuable resource, and it helps a lot of taxpayers every year. Anywhere from 18-20 million people file an extension every year.

Filing an extension on time will never cause you a penalty. However, if you file your tax return late or fail to pay estimated taxes due, then you could have a penalty to contend with. The IRS has very strict penalties. At the same time, while there are exceptions and abatement processes, it's important to try to avoid penalty situations.

  • Interest will be charged on any unpaid taxes as of the original tax deadline
  • If you fail to file an extension and pay, you will owe a late filing penalty, plus penalties and interest on any taxes that remain unpaid

These rules are why it is highly recommended to obtain an extension if you are unable to file on time, and at least make a payment estimate when you file your extension. Get that in place, and then take the time you need to finish preparing the return for filing.

Will Filing an Extension Make Me Liable for an Audit?

According to the IRS, approximately 19 million taxpayers filed for a tax extension for the 2022 tax season. The IRS does not have the time or resources to audit 19 million taxpayers. Filing for a tax extension does not make you more liable to be audited by the IRS.

  • Some of the most common reasons that the IRS will audit a tax return include:
  • Making math errors on your Form 1040
  • Not reporting all of your income
  • Claiming an unusually high amount of charitable donations
  • Reporting a large amount of losses on a Schedule C
  • Over-deducting business expenses
  • Claiming the home office deduction
  • Using round, neat numbers

Only 0.38% of tax returns were audited for the 2022 tax season. As you can see, one of the reasons that the IRS usually performs an audit is not due to requesting an extension to file. You can file an extension with confidence, knowing that it won't impact your chances of getting audited.

Do I Need an Accountant to File a Tax Extension?

If you've never filed a tax extension before, it may sound daunting, but it's actually a relatively easy process. In fact, you don't even need to hire a tax accountant to help you file!

As long as your tax extension is filed accurately and by the filing deadline, the IRS will generally accept your extension. You can file your tax extension quickly and accurately by using online tax extension software

Can I Get a Second Tax Extension?

After reading all of this, you may be thinking that tax extensions are an awesome way to avoid filing your tax return. Is it possible to just indefinitely avoid filing your tax return by requesting multiple extensions?

Unfortunately, aside from a few unique circumstances, you are only able to file one tax extension per tax year. Therefore, the extended filing deadline for your tax return is usually a hard cutoff for when you need to file your tax return.

Can a Resident Alien File a Tax Extension?

If you aren't a U.S. citizen, you may be wondering if you can also reap the benefits of filing a tax extension. If you’re a resident alien, you are able to request a tax extension

In fact, due to the complications of submitting your taxes as a resident alien, it's actually recommended that you submit a tax extension. This will give you extra time to go through the intricacies of filing your taxes as a non-U.S. citizen.

Does Filing a Personal Extension Also Extend My Business Tax Deadline?

If you own a sole proprietorship or a single-member LLC, then filing a personal extension also extends the filing deadline for your business! Therefore, when calculating your owed taxes on your tax return, you should also account for any taxes or deductions included in your business taxes.

If you own any other type of business, then you will need to file a separate form to request a tax extension. Learn more about filing a tax extension for your business by reading our article on filing a tax extension for a limited liability company.

Conclusion

Even if this is only a one-time situation, you should use extensions when you need them and give yourself an extra six months to file.

You don't have to figure out the steps alone, as taxes can be overwhelming for many. If you’re considering an extension, we can help you get the process started.

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