For most American taxpayers, April 15 is Tax Day—the due date for filing an individual tax return. However, over 10 million taxpayers choose to file an extension. But what exactly does that mean?
An extension is a request to the IRS for extra time to file your tax return. Once an extension has been accepted by the IRS, they automatically grant you an additional six months to file your return. Having extra time to finish a return is sometimes necessary, especially if you are waiting for tax documents to arrive in the mail or you need additional time to organize your tax deductions.
But what if you owe?
It's important to know that a tax extension is not an extension of time to pay your tax bill. You will owe interest on any amount not paid by the April 15 deadline, plus you may owe penalties.
There are two basic penalties that the IRS typically imposes:
If an extension has been filed and your tax return is filed by the October 15 extension deadline, you’ll avoid a 5% per month late filing penalty. However, you may still be subject to the late payment penalty and interest if you didn’t pay any tax due by April 15.
Some taxpayers worry that they are more likely to be audited by the IRS if they request an extension. This isn’t true! The IRS uses the same audit determinations on all tax returns filed, whether on the original tax filing deadline or on the extension deadline.
Even if you're planning to file an extension, it's critical that you communicate with your accountant or tax preparer well in advance of the April 15 filing deadline to allow your preparer adequate time to determine whether you owe and give you time to pay if you do!