13 Jul Tax Extension? Big Question
Tax Extension is possible, but it might not mean what you think. With July 15th being the deadline, some taxpayers might still have the wrong idea about the meaning of a tax extension. So our question of the week at Gavrilov & Co is “Do I get an extension of time to pay on my tax deadline if I file an extension?” And the Short Answer is “No.” Or read on to see why we might add, “You might take more time, but it won’t be free.”
Deadline for Filing Federal Taxes Just Ahead
The shadow of the July 15th Federal filing deadline is hanging over us now. Yet, even at this late date, some taxpayers assume mistakenly that taking a tax extension to October 15 will buy them more time to pay their tax. To put it bluntly, the tax extension is not deferment or forgiveness of tax payment.
Todd Simmens is an expert accountant and partner at BDO USA. In his words, “If you’re an individual, you can file an extension by July 15, which will give you until October 15 to file your tax return.” Then, he added, “However, The tax extension “does not defer your payment deadline.”
Plain Talk Translation: even with a tax extension, you need to pay what you figure you owe, on July 15. That’s the payment deadline , and it is firm, in spite of COVID-19 and economic difficulties.
Plain Talk On Tax Extension Details
In other words, if you refuse to pay what you owe by July 15, the IRS will hit you penalties and interest, even if you file an extension. And they will get right to it. Your interest on those penalties will begin accruing on July 16, 2020.
However, you will still want to file an extension if you cannot file on time. Why? Because penalties for not filing on time are much steeper. In short, here are a few general tips on extensions.
- To make it simple, if you want to avoid fees and penalties, pay what you figure you owe by July 15.
- If you discover you have over-paid, don’t worry. The IRS will send it back to you.
- When they learn this, people say, Okay, why get an extension?
- There are some tax payers who find it worth paying the penalties to shuffle around their paperwork until October 15th. Example: You may have difficulties finding required documents. Or you have waited until the last minute and haven’t started. (procrastination).
The Paper Trail for A Tax Extension: There’s A Form for That
Just in case you want to file for a tax extension, remember to file Form 4868 through your tax professional, your software, or the Free File link on IRS.gov. Likewise, form 7004 is for businesses who want a tax extension.
So, the next question we have heard from clients once they know the July 15 deadline is rock solid, is “So, what is the advantage of taking the extension?” The answer is that a tax extension will possibly reduce your penalties and interest if you simply can’t afford to pay in full at this time.
What Penalties Does the Tax Extension Reduce?
The Gavrilov Tax Squad wants you to know the IRS demands two types of late penalties if you do not file July 15th. One is for late payments and one is late filing. And certainly, the latter is the larger.
- They charge 5% on any tax due for each month or part of a month that a tax return is filed late without an extension request.
- Plus the IRS charges you a late payment penalty of .5% a month up to a maximum of 25%.
The Advantage of a Tax Extension
However, here is the best advantage of a tax extension: if you take a tax extension, you will only deal with one of the above two penalties. That is, if you file form 4868 and if you then pay by Oct 15.
- To put it simply, you can avoid the 5% per month late-filing penalty if you file for an extension now.
- Likewise, the late filing penalty wouldn’t begin until Oct. 15, if you miss that deadline.
The Biggest, Scariest, Income Tax Question of all: What Happens if I can’t pay my tax bill?
1. Taxpayers can find options for payment plans with the IRS.
2. Sometimes, in cases of critical financial burden, the government might be able to settle with you for less than the owed amount.
3. If you are aware in advance that upcoming taxes will cause a great hardship, contact the IRS. Or call a skilled tax accountant early. That way you can avoid the unpleasantness of collection notices.
A Parting Note: What if I Don’t File a Tax Extension and Don’t Pay?
We don’t want to cause you undue anxiety, but if you neither file nor pay, here’s how expensive it can get:
- Total penalties can max out to 47.5% of the tax due. (Cringe!) That means 22.5% for late filing and 25% for late payment.
- This could happen to you if you ignore the tax deadline and don’t request an extension from the IRS to file your return in October, and if you have a tax bill due.
Watch for our Gavrilov & Co” Question of the Week” blogs, like this one. As the year progresses, our tax squad and executive accountants answer the most critical tax and accounting questions of our time. The questions might be simple or complex, but they will be always be timely and you’ll find the answers at Gavrilov & Co.