There are several potential benefits to filing a tax extension, depending on your specific situation. But there’s one BIG reason you should never use to file an extension.
If your funds are low around April 15 and you know you won’t be able to pay your taxes when you file, filing an extension (IRS Form 4868) won’t give you extra time to pay.
“Taxes due need to be paid by April 15 regardless of whether you extend your personal taxes. Extensions are for paperwork only- interest and penalties of any unpaid taxes start accruing after April 15,” says Rob Tamburri, CPA and Managing Partner at Balog & Tamburri, LLC. “But the good news is that if you pay the IRS too much, the IRS will pay you interest.”
Yes, that’s right.
An extension to file doesn’t equal an extension to pay.
You’ll still need to pay your taxes if you file an extension. If you don’t, you will also have to pay penalties and interest to the IRS when you do finally make a payment.
So what can you do if you aren’t able to pay your taxes by the deadline? If you know you won’t be able to pay when you file your taxes or an extension, don’t fret. The IRS does offer installment agreements.
The most important thing to remember is that you must communicate with the IRS and fill out the appropriate forms or applications. (See Item 5 on the IRS’s page about filing extensions for more information about installment agreements.)
If you happen to be filing an S Corp or partnership return, though, Rob has an important reminder:
“Business owners filing an S Corp or partnership return often forget that the deadline is March 15, not April 15. And if they end up needing to file an extension, their new deadline becomes September 15.”
THE BOTTOM LINE:
Just because you file a tax extension doesn’t mean you’re off the hook for paying your taxes by April 15. It’s important to understand what taxes you think you’ll owe and make the payment, even if you file an extension, to avoid paying penalty and interest.