It’s 10:00 pm on April 15th and your tax return hasn’t been filed with the IRS. This leaves you with two choices. You can either not do anything about it and suffer the wrath of the IRS, or you can file a one-page tax extension. If you file an extension form, it’ll give you more time to file your return.
Three Reasons For Filing a Tax Extension
There are a few legitimate business reasons for filing a tax extension.
1. Time
For instance, if your business schedule is chaotic and you have very little time and resources to file, filing a tax extension may be the right option for you.
2. Entities
To illustrate, if you own multiple entities, you may need extra time to complete your taxes. This happens sometimes because one return can’t be filed until others are complete, which may take time beyond the April 17th deadline.
3. Documentation
For example, depending on what forms you need and the documentation you have, there might not be enough time to document everything the IRS needs.
What Are Tax Extensions?
A tax extension gives taxpayers extra time to file their tax returns. IMPORTANT: It is not an extension to pay your taxes! Let me repeat this–extensions refer to the paperwork, not the tax liability it’s reporting. If a taxpayer anticipates owing taxes with his or her tax IRS extension return, the tax liability must be paid with the extension by April 17th.
You can find Form 4868 here and on the IRS website to file a tax extension. This form will allow an extra 6 months for individuals and five months for businesses, making October 17th and September 17th, respectively, your new tax deadline.
Tax Penalties For Filing Late
When you file your tax return by the extension deadline, you might discover you owe more taxes than you’ve paid. Even though the extension form was submitted on time and you paid your estimated taxes, the remaining tax liability is still subject to penalty. Specifically, the penalty will be a percentage of the amount due, multiplied by the number of months it’s late. In addition, other late fees or underpayment fees could also be applied.
Most of our clients do estimated tax payments. We always recommend that they send in their 1st quarter estimated tax payment as part of the extension payment. This reduces the possibility of incurring additional penalties when the return is actually filed.
If you forget to file your taxes, the IRS will not consider it a legitimate reason for an extension. Furthermore, they may even deny the extension if that appears to be the case. If you’re worried about getting your tax return filed on time this year, call your CPA for advice. They can help you decide if filing an extension is your best option and help you try to minimize penalties.
By Sarah Moore
Manager at WHH
