If you need a little more time to file your taxes, you can file a tax extension which gives you until October 15 to file your taxes. If October 15 falls on a Holiday or weekend, the deadline will be the next business day. Most taxpayers get the extension granted as long as they file it on time, but what happens afterward is what you must know.
Determine your State’s Requirements
Some states automatically extend your tax due date if you file a federal extension. Check with your state’s tax department to find out if they’ll automatically extend your due date or if you must file a separate extension with them.
Each state has a different requirement or form you must complete in order to ensure that you have an extension. Since Florida doesn’t have a personal state income tax, there’s no need to file a state extension.
Pay your Tax Liability
An extension to file your taxes is not an extension to pay it. If you’re expecting a tax refund, there’s nothing you must do. But, if you know you’ll owe taxes, you must estimate your tax liability and pay it by the tax deadline of April 15. If April 15 falls on a Holiday or weekend, the deadline is the following business day.
If you don’t pay your tax liability on time, you’ll pay penalties and interest. It’s best if you pay the entire amount you owe, but at the very least, pay as much as you can to limit your late payment fees and penalties.
Each month your payments are past the tax filing deadline, you’ll be charged 0.5% of the unpaid balance. The maximum in late fees you can pay is 25% of the balance. This is called the Failure-to-Pay penalty.
If you owe $3,000, you’d pay $15 per month with a maximum of $750 in late fees.
In addition to the late fees, you’ll pay interest on the balance due. Interest compounds daily, so it’s important to pay your tax liability as soon as possible. The rate is the federal short term interest rate plus 3%. Right now, the rate is 0.13% plus 3% or 3.13% annually and 0.008% daily In our $3,000 example above, that would be $0.24 per day.
What if you Don’t Have the Funds?
If you don’t have the funds to pay your tax lability on time, you have a few options. The easiest is to ask for a short-term extension. You’ll automatically get an extra 120-days to pay the balance due in full. There’s no fee for this option, but the Failure-to-Pay penalty and interest still accrue.
If you know you can’t pay the balance in full in 120 days, you have two options:
- Request an installment agreement – If you owe less than $50,000, you can apply for an installment agreement which allows you to pay monthly toward your debt. Interest and fees still accrue though, so it’s important to pay as much as you can each month. If you owe more than $50,000, you can still request an installment agreement, but the IRS will require some additional information before approving it.
- Apply for an offer-in-compromise – This is a last resort as it’s harder to get, but it asks the IRS for a settlement because you won’t be able to satisfy your tax liability.
Filing a tax extension is possible for anyone, but it’s important to take your tax liability serious. A tax extension provides you more time to gather your documents and file your tax returns, but the money owed to the IRS is still due by the tax filing deadline unless you make other arrangements.
For more information or assistance, contact the tax experts at Murtha and Murtha CPAs today.