There are many advantages to filing a tax extension. Whether you desperately need more time to file, or you are just procrastinating, an extension is easy to request. There are no income qualifications or restrictions when it comes to filing a tax extension. Anybody can request an extension, as long as the correct information is provided on the tax extension application (Form 4868 for individuals).
There is possibly only one downside to filing a tax extension, but one that cannot be avoided in almost all tax liability situations – a tax extension does not absolve or extend your obligation to pay your taxes by the 15th April deadline. Your taxes will still be due and payable to the IRS by that date. However, by extending your tax return filing deadline, you can reduce the amount of penalties that the IRS has established for any unpaid taxes.
Lower Penalties and Fees
The single largest benefit to filing an individual tax extension is simply that, in the long run, you will pay fewer penalties and interest than if you fail to file an extension and don’t pay your taxes on time. If you file an extension but you don’t pay your taxes, the IRS will charge a 0.5% monthly payment penalty on your outstanding balance. However, if you don’t file an extension and don’t pay your taxes, the penalties increase to 5% per month, up to a maximum of 25%. There is also a minimum late filing fee of $135 if you fail to file an extension and your tax return is 60 days overdue.
Time is Money
If you request a tax extension and receive extra time in order to ensure that your tax return is free from errors or omissions, time really can equate to money. It is always better to get an extension rather than filing an incomplete or inaccurate tax return, as misinformation will raise red flags at the IRS (and could even lead to a tax audit). Audits are notoriously successful in uncovering mistakes, errors, or omissions that could significantly increase your tax liability.
A tax extension gives you more time to find all the tax credits and tax deductions that you qualify for, which means you can prepare a more advantageous tax return. And since tax laws are always changing, you might find that you are eligible for new tax breaks unveiled after April 15.
Some wrongly believe that filing a tax filing extension is an arduous or expensive process. But it is actually very easy and affordable. The fastest and safest way to file a tax extension is to do it online. Within minutes, you can fill out the extension application and even submit an electronic tax payment with your extension. You can e-file a tax extension from the comfort of your home computer and you don’t even need the help of a tax professional.
Tax extensions are automatic, which means you don’t have to sign the form or give a reason for your request. The IRS requires you to provide an estimate of your tax liability, but your extension will not be rejected if your estimate is off. And as long as you pay at least 90% of your actual tax liability, you will not be subject to the 4.5% late payment penalty.
By waiting until after the busy tax season, your accountant or tax preparer will have more time to focus on your return, which helps ensure that you get the best service possible.
Millions of people file tax extensions every year, so you don’t have to worry about the IRS flagging your return just because you got an extension. In fact, the IRS doesn’t care whether you request an extension, which is why it’s so easy to file one.