Everyone has good intentions in January. But life happens and winter disappears. Before you know it, April’s tax filing deadline has already crept in. Filing an extension is a lot easier than you think. Here’s a look at how to do it — and why it’s so important.
What happens if you miss the April Tax deadline
In the grand scheme of life, missing a tax deadline isn’t the worst thing you could do. But that doesn’t make it any less of a headache. If you sail past April 15th without sending your tax paperwork to the IRS, two problems may arise:
- You will owe a penalty for filing late
- You may owe a penalty for paying your taxes late.
The penalty for filing late, also known as failure-to-file, is 5 percent of your unpaid taxes per month until you file. The penalty clock starts ticking the day after the deadline, so it can add up quickly. The good news is, the penalty won’t be more than 25 percent of what you owe. But if you are more than 60 days late, there is a minimum penalty of $135 or 100 percent of your unpaid tax — whichever one is smaller.
If you are late on your payment, which the IRS calls failure-to-pay, the fee is .5 percent per month. The penalty starts accruing immediately, but you can avoid it if have already paid 90 percent of the tax balance. Otherwise, the remaining 10 percent is due by the extension deadline in October.
The only way to get out of these penalties is showing “reasonable cause” for missing the deadline.
How to file your tax extension
As you can see, filing and paying late adds up fast. The best way to save your wallet — and keep your stress levels down — is by filing an extension with the IRS.
When you know you will miss the tax deadline, filing an extension is the best move. For starters, you will have six more months to get organized. You will also save yourself from that nasty 5 percent monthly fee. The only downside is, you may still owe the .5 percent late payment fee for every month until you make that payment.
The deadline to file
your tax extension is April 15, 2019. Maine and Massachusetts residents get two
extra days. These are the three different ways you can do it:
1. Pay all or part of your quarterly estimated tax through Direct Pay. This is the IRS’ electronic payment system. You need to choose “extension” for the type of payment.
2. File Form 4868 electronically through the IRS e-file system. For more details, visit IRS.gov and select “freefile.” You may also have this option through tax software. Several companies offer it; your accountant’s software will too.
3. Print, complete, and mail a copy of Form 4868 directly to the IRS. You can mail a check with your estimated payment if you prefer not to send it electronically.
Note: If you need an extension on your state taxes, these are treated differently. You can learn more about your state’s guidelines by visiting the Federation of Tax Administrators website.
The bottom line
No one plans to miss tax deadlines, but sometimes life gets in the way. Forms get lost in the mail. Or major life events distract you. Filing for a tax extension is more than some extra time — it’s the best way to avoid costly late filing fees.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.