[Blog Post] - Should I File An Income Tax Extension? | The Retirement Planning Group

Tax season is upon us, and with it comes the stress of filing your taxes on time. For many, filing an income tax extension can be a great way to give yourself more time to complete your taxes and ensure accuracy. An income tax extension is a great option for those who need more time to prepare their return, but it’s important to understand the details before you apply. In this blog, we’ll explore the basics of income tax extensions and provide tips to help you decide if it’s right for you.

What is a Tax Extension?

Filing taxes is an essential responsibility for both individuals and businesses. Thankfully, the IRS allows taxpayers to extend their filing deadline in certain circumstances. This extension, known as a tax extension, can give taxpayers an additional six months to submit their tax returns. 

Filing a tax extension is free and does not require any additional paperwork or fees. However, it’s important to note that filing a tax extension does not guarantee that the IRS will not charge penalties for late filing, so it’s essential to file your taxes by the due date. 

Tax extensions are only available to individuals and businesses, not to estates or trusts. In addition, tax extensions are only valid if your taxes are paid in full by due date. You must file your extension requests before the April 15th filing deadline and complete Form 4868 to request a tax extension. 

By filing a tax extension, you can take the time to ensure that you have all the necessary documents and information for your tax returns. This can help you avoid costly mistakes and help them avoid penalties from the IRS. It’s important to remember, however, that filing a tax extension does not guarantee an extension of time to pay taxes, so you should make sure that your taxes are paid in full by the due date. 

How Tax Extensions Work

A tax extension is a great way to give yourself extra time to file taxes without penalties. The IRS allows taxpayers to request an extension up to six months after the original due date. You can submit your tax extension request directly to the IRS using Form 4868. 

Once your tax extension request is accepted, the IRS will give you six more months to file your tax return. However, it is important to note that an extension of time to file your taxes does not also give you an extension of time to pay any taxes due. You are still required to pay your taxes by the original due date, or you may be subject to penalties and interest. 

How to File a Tax Extension

To request an extension, you must complete and submit IRS Form 4868 by the April 15 deadline. To request an extension, go to IRS.gov to use Free File. This site lists several companies that have partnered with the IRS and allows you to e-file your extension for free. It is important to note that an extension does not provide additional time to pay taxes due, so you must estimate what you owe and pay the balance due with your extension request. When filing for an extension, you must submit your taxes by October 15. 

You may track the status of your extension request online or by calling the IRS. Additionally, you may be charged interest on any taxes due that are not paid by the April 15 deadline. If you do not pay taxes owed by the April 15 deadline, you may also be subject to late filing penalties. 

By filing for an income tax extension, you can take the time you need to ensure your taxes are filed accurately. There is no penalty for filing an extension as long as you submit your taxes by the October 15 deadline. 

Avoid IRS Penalties

Filing an extension gives you six more months to complete your federal income tax returns. This does NOT give you six more months to pay any income taxes owed. You should estimate what you owe the IRS and pay it by April 15. If you can’t pay all of what you owe, then pay as much as you can. The IRS has a failure-to-pay penalty, which charges .5% interest of the unpaid balance per month up to a maximum of 25% of the unpaid tax. 

If you don’t file an extension by April 15, then the IRS will also assess a failure-to-file penalty. This penalty is 5% of the unpaid taxes for each month your tax return is late up to a maximum of 25% of the unpaid taxes. 

Why file for an extension?

Filing for an extension could certainly help you avoid IRS penalties. However, there are many other reasons why someone would want to file for an extension. You could be waiting on certain tax documents. For small business owners, filing an extension could be very advantageous. Not only could it give you more time to gather the income and expense information for your business, but it would give you more time to contribute to a self-employed retirement plan such as a SEP IRA, Individual 401(k), or SIMPLE IRA.

For example, let’s say you own a lawn care business. Most of your revenue comes during the spring and summer months. Cash flow is tight during the winter months. If you file for an extension, then you would have until October 15th to contribute to your self-employed retirement plan. By mid-October, you could have enough money to contribute the maximum to your retirement plan. If you are opening a new Individual 401(k), or SIMPLE IRA, these plans must be set up during the tax year, but you have until the tax filing deadline extension date to contribute.

Also if you are filing an extension for your federal tax returns, you should check the rules for filing an extension with your state. Your state rules could be different from the federal income tax rules.

Overall, tax extensions can be a great way to reduce stress and ensure that you are filing your taxes correctly. While the process may take a bit of work, the peace of mind that filing a tax extension can bring is worth the effort. If you’re feeling overwhelmed or are having difficulty meeting the tax filing deadline, consider filing for an extension. It could be just the relief you need.