There are several potential benefits to filing a tax extension, depending on your specific situation. But there’s one BIG misunderstanding about filing tax extensions.
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.
“What if you miss a date? You’ll probably be hit with a financial penalty, if only an extra interest charge, if you don’t submit a return and any payment due by its appropriate deadline. The late filing penalty for a 1040 return is 5% of the tax due per month as of 2020, up to a cap of 25% overall, with additional fees piling up after 60 days,” states William Perez with The Balance. “The IRS says you should file your return as soon as possible if you miss a deadline. If you owe taxes, pay them as soon as you can as well.”
Yes, that’s right.
An extension to file doesn’t equal an extension to pay!
You’ll still need to pay your taxes by April 15th if you owe. If you don’t, you may face 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.
You must communicate with the IRS and fill out the appropriate forms or applications. If you want to make installment payments, check out how to here.
THE BOTTOM LINE:
Just because you file a tax extension doesn’t mean you’re off the hook for paying your taxes by April 15th. 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.