Tax Extensions: What They Are and Are Not
Many people misunderstand tax extensions. A common myth is that they give you extra time to pay your taxes. This is not true. Payment is still due by April 15th, or penalties and interest apply.
In this post, we’ll explain what a tax extension really is, why you would file one, and what you need to know about payments and deadlines.
What Is a Tax Extension?
A tax extension is simply extra time to file your tax return. That’s it. It does not give you more time to pay what you owe.
When you file an extension, the IRS grants you an automatic 6-month extension to file your return. However, you are still required to pay your projected tax liability by the standard tax-day deadline. If you don’t, penalties and interest start accruing immediately.
This is one of the biggest tax misunderstandings people have. If you think filing an extension buys you time to figure out your tax bill, think again.
Why Would Someone File a Tax Extension?
Filing an extension is not uncommon. In fact, it’s a useful tool for people with more complex tax situations who simply don’t have everything they need to file by the deadline.
You might file an extension if:
You receive K-1s from partnerships or funds that often don’t arrive until late spring or summer.
You have a business, rental properties, or multiple streams of income, and need time to finalize your bookkeeping.
You are working with a tax professional who needs more time to complete your return.
W2 earners with simple returns typically don’t need to file an extension; all documents should be available prior to April 15th.
Does Filing an Extension Increase Your Risk of Audit?
No. This is another common myth. Filing an extension does not increase your chances of being audited. The IRS doesn’t flag your return just because you requested more time to file. In fact, taking the time to get your return right can actually reduce your chances of errors that might attract attention.
What Happens If You Owe and Don’t Pay by April 15th?
If you owe taxes and don’t pay by the original deadline, you’ll face failure-to-pay penalties and interest on the outstanding amount even if you file an extension.
Failure-to-pay penalty: usually 0.5% of your unpaid taxes for each month (or part of a month) you are late, up to 25% of your unpaid taxes.
Interest: calculated on the unpaid amount from the original due date until the date you pay in full.
Filing the extension helps you avoid the failure-to-file penalty. But it doesn’t help with late payment costs.
Final Thoughts
A tax extension is a valuable tool; you just need to remember that it only gives you more time to file, no more time to pay. If you expect to owe, do your best to make a payment by April 15th. Even an estimated payment is better than no payment.
When in doubt, talk to your tax professional. And if you’re still looking for the right financial team to support you, let’s connect.
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