The deadline to file your 2019 taxes is fast approaching (April 15th, 2020), but if for some reason, you think you will need more time to file your returns, it is critical that you file a tax extension. With the help of an extension, you can easily get 6 additional months from the IRS to get your taxes done.
In this post, you will learn all about filing a tax extension so as to avoid any potential penalties.
Tax Extension and How to File It
The standard deadline for filing taxes is April 15th, however, once you get a tax extension, your deadline gets pushed to October 15th, i.e., you will get six extra months to file your returns. If you currently owe taxes but cannot afford to pay them in a timely manner, a tax extension can save you from severe tax filing penalties.
In order to file a tax extension, simply fill out the IRS form no. 4868 – you can do this electronically (via e-file) or mail in your completed form. This form is very straightforward and easy-to-fill out; all you need to include is your name, address, and the Social Security Number.
Pro Tip: You can use IRS’ Free File website to file for an extension online. But keep in mind that this site doesn’t offer extensions throughout the year (it will open in January 2020).
You need to file the extension before April 15th.
Another important thing to note is getting a tax extension does not give you more time to pay your taxes – you only get more time to file your returns. This means that even if you are unable to file your return by April 15th, you must estimate your tax bill and pay as much of that as possible by that date. In fact, it’s advised to pay your taxes when you file for the extension.
If you owe anything after the deadline, that amount will be subject to a late-payment penalty and interest – even if you received a tax extension.
The only way to avoid the late-payment penalty is to make sure you meet the IRS safe harbor rules.
Some people are under the impression that filing an extension is useless if they cannot afford to pay anything in taxes – that can be a grave mistake. The penalty for not filing your returns (5% per month) is much higher than filing and not paying (0.5% per month). So, even if you can’t pay a penny of your taxes, please file an extension before the April deadline.
IRS Penalties to Keep in Mind
Penalty for not filing the taxes on time:
This can go two ways:
If you owe on taxes, you will be charged an additional 5% of what you owe up to 25%, for each month you don’t file your taxes.
If you are expecting a refund, you will not get the IRS penalty for late filing. You simply won’t receive your refund until you file. The IRS will hold onto your tax return money for 4 years, and if you still don’t file the taxes, the IRS will keep the money.
Penalty for not paying the taxes on time:
If you file an extension but are unable to pay your taxes, you will be levied 0.5% per month (for each month you don’t pay) plus interest in penalties.
How to file an extension if I am out of the country?
If you are out of the country for the tax deadline, you can get 2 extra months to file your taxes. So, instead of April 15th, your deadline will be June 15th. But this only works if you are abroad for work or employment purposes; if you’re on a vacation, it wouldn’t count and you will be expected to pay before the April deadline.
What should I do if I cannot afford to pay my taxes?
If you owe a significant amount in taxes and can’t pay before the April deadline, even with an extension, you can request an installment agreement online through the IRS – only if you owe less than $50,000 in taxes, interest, and penalties.
This agreement allows you to break your debt down into manageable monthly payments which you can pay off in the next six years.