Maybe this has happened to you.
You got your W-2 or 1099 in February and you said, Meh, I’ll file these eventually. Maybe you had an unexpected life event or you were missing an important document and thought, I still have until April. Then, in the blink of an eye, Tax Day arrived and you still hadn’t done your taxes.
Well, in that case, you may need to file a tax extension. Not sure what that even means or how it works? Don’t worry. We’ve got the full scoop on everything you need to know about tax extensions.
What is a tax extension?
Simply put, a tax extension gives you six extra months to do your taxes, pushing your filing deadline from April 15 to Oct. 15. If you owe taxes, filing an extension can help you avoid the tax filing penalty—which can be severe. While you’ll avoid penalties for not filing, you’ll still be liable for any amount you actually owe. We’ve got more on that below.
How do you file a tax extension?
This one is easy. You’ll need to fill out IRS Form 4868, then mail in your form or file it electronically using IRS e-file. To get an extension without the form, you can pay all (or part) of your estimated income taxes online. You’ll get an automatic extension just by paying, but you do have to fill out your return eventually.
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Go to IRS.gov to download the form or get more details about making a payment.
How much does a tax extension cost?
This one is rare for the IRS. A tax extension is free!
What does a tax extension not do?
Don’t overlook this: A tax extension doesn’t give you more time to pay taxes you owe. If you owe on taxes and you need to file an extension, you must pay when you file your extension. Otherwise, you’ll also have to pay interest and late penalties.
Yeah, that can be a little confusing. If you haven’t filed your taxes and you need to file an extension, how do you know how much you owe?
Luckily, the IRS makes this easy. You can figure out how much you owe with their online tool at IRS.gov. Once you figure out what you owe, send your payment with your tax extension form.
If you owe on taxes, should you even file an extension?
This is worth repeating: yes! Even if you can’t pay a dime of your taxes, you should file an extension. The penalty for not filing your taxes is 10 times more severe than filing and not paying.
What’s the IRS penalty for not filing your taxes on time?
When it comes to late penalties for not filing your taxes, you could be in one of two scenarios:
Are you expecting a refund?
If you are, you won’t get a penalty for filing late. You just won’t get your tax return money until you file. It’s that simple. The IRS will hold onto your money for three years.1 What happens after three years? The IRS looks both ways and pockets that cash.
Do you owe on taxes?
If so, failing to file an extension could cost you a pretty penny. For every month you don’t file your taxes, you’ll pay an additional 5% of what you owe up to 25%.2
For example, let’s say you owe $1,000, then you miss the April 15 deadline and you don’t file an extension. On May 25, you finally get around to filing your taxes. Your late penalty would be $100 ($1,000 x 10%). And that’s just the late penalty. You’d also pay interest on what you already owe.
What’s the IRS penalty for not paying your taxes on time?
Let’s say you file an extension, but you can’t pay all your taxes. In that case, your penalty is less severe than for not filing. Instead of paying 5% every month, you would pay 0.5% up to 25%.3
But wait, there’s more.
For every day you don’t pay your taxes, the IRS charges you interest—at a rate that builds until you pay the entire bill.
Let’s go back to our example above. Say you owe $1,000, but this time you file an extension. By May 25, your penalty would be $10 ($1,000 x 1%), plus interest.
What is the deadline for filing a tax extension?
The tax extension deadline is always the same as Tax Day, April 15.
Can you file an extension after the April 15 deadline?
No! If you’re late on filing the form that helps you file your taxes late (yes, read that again slowly), you will face a filing penalty.
When should you file a tax extension?
Now, let’s be clear. If your tax situation is pretty simple and you’re just feeling lazy, get your butt up and do your taxes!
Otherwise, here are some situations where it’s okay to file an extension:
1. You don’t have the documents you need.
Are you missing your W-2, 1099 or other important documents? In that case, file for an extension, gather those documents, and do your taxes.
2. You go through an unexpected life event.
Life doesn’t stop for taxes. If you experience a traumatic life event like a family death, natural disaster or illness, don’t push yourself to finish your taxes. File for an extension, focus on your life, and do your taxes later. Just don’t forget about them!
3. Your tax situation is really complicated and you just need more time.
Itemizing tax deductions or owning a small business can make your tax filing really difficult. In that case, pushing the deadline to October can prevent you from rushing through your taxes and making dumb mistakes.
But listen: If your tax situation is that complicated, you should work with a pro. What may take you days or weeks to do can take a pro far less time. Find a top pro in your area today.
What if you’re out of the country for the tax deadline?
If you’re working out of the country or take a vacation and you miss Tax Day, guess what? You’re still expected to file your taxes (or at least file for an extension) before the April deadline.
Are you having trouble doing your taxes?
Here’s the thing: Getting a tax extension doesn’t solve the initial problem—getting your taxes done right. We hate to be the bearer of bad news, but you still have to do them.
If you don’t think you’ll be able to get your taxes together in time, talk with one of our tax ELPs. We’ve vetted some of the top tax pros in the country and can recommend the best ones near you. They have years of experience and, believe it or not, they love this stuff. They can help you get your taxes together after you file an extension.