6 Warnings About Filing a Tax Extension, According to Experts
Here's what can happen when don't get your documents in by the deadline.
Despite it being a yearly event, the April deadline to file your taxes can still find a way to sneak up on you. And even if you're using a tool or hiring professional help to make sure they're done right, you may still need extra time to get everything organized before you send it off. But before you request an extension from the IRS, there are a few essential things to keep in mind that could save you some grief in the long run. Read on for six warnings about filing a tax extension from financial experts.
RELATED: IRS Issues New Alert on 5 Things You Must Declare on Your Taxes This Year.
1
You can't be late on filing for an extension.
Most people do their best to get their filings into the IRS by the April deadline, if only to cut back on stress. However, some may not realize that the same due date for your taxes is the same deadline you have to file for the extension itself.
"You have to file the extension request before the tax deadline of April 15," says Robert Farrington, founder of the College Investor. "If you fail to file the extension request on time, you can receive a failure to file penalty of up to 25 percent of your taxes."
RELATED: 10 Warnings About Using TurboTax, According to Experts.
2
You might need to take extra steps for state taxes.
Filing for state taxes is also part of the equation, in addition to federal. And depending on where you live, this could mean a little extra work if you file for an extension.
"Some states accept the federal extension without requiring additional steps or paperwork, but other states require taxpayers to request an extension directly with them," says Peggy James, a CPA and expert contributor for Annuity.org. "Failing to request the extension if it's required could result in late filing penalties."
3
Your extension to file isn't an extension on paying what you owe.
Taxpayers typically get a six-month extension when they file for one. But while this can buy you some time to turn in your documents, it doesn't change the deadline for actually paying the IRS.
"The main point to remember is that an extension to file a tax return is not an extension to pay taxes due on that return," says Roxanne Hendrix, a certified public accountant (CPA) and tax expert at JustAnswer. "The amount owed still must be paid by the April deadline."
She points out that if you cannot pay the entire amount of taxes due, you can set up a payment plan with the IRS at the time of extension filing. "However, interest and penalties will be accruing until the balance is paid in full," she warns.
And according to James, those who don't have enough time to estimate how much they'll owe still have one handy option.
"My advice to clients in this situation is to use their prior year's tax return as a guide. If their situation hasn't changed significantly since then, pay the same amount as they did the prior year. It's not a perfect solution—you're probably not going to get the number exactly right—but this should limit penalties and interest," she tells Best Life.
4
Taking longer to file means waiting longer for your refund.
Naturally, the longer you take to get your information to the IRS, the longer it will take them to process everything. And if you're counting on some money coming back, that means you'll be left waiting.
"If you were due a refund and chose to extend your return, your refund will not be issued until after the return is filed," says Hendrix. "And note that IRS will not add any accrued interest to your delayed refund, unlike what they do to taxes due."
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5
Your extension doesn't cover other important deadlines.
Your annual filing may be one of the most daunting fiscal duties of the year, but it's often not the only thing on the calendar. Hendrix warns you'll still be on the line for other important payment dates.
"Extension also does not delay the payment of estimated taxes, give you more time to contribute to an IRA or health savings account, or extend any of the other April 15 due dates," cautions Hendrix. "And after the deadline, married couples can't file amended separate returns if they previously filed a joint return."
6
You don't have to use all the time the extension buys you.
Getting an extension is the best way to buy extra time when putting together your filing. But experts warn that you should avoid the temptation to procrastinate the entire six months once it's in place.
"Keep in mind that even if you file an extension, it does not mean you have to wait till October to file your taxes," Hendrix points out. "You can file an extension on April 10 and then file your return before the April 15 deadline if you were able to gather all the information you need to complete your tax return."
And, of course, there's a strong incentive not to put things off too long.
"Since the late payment penalties are time-based—meaning they increase the longer you wait to pay—it's in your best interest to prepare and file the return as soon as possible rather than waiting until the extension deadline of Oct. 15," says James.
Best Life offers the most up-to-date financial information from top experts and the latest news and research, but our content is not meant to be a substitute for professional guidance. When it comes to the money you're spending, saving, or investing, always consult your financial advisor directly.
