Filing for an extension can be daunting. Don’t make the mistake of taking it lightly! We know you want to get everything done right, so let’s get right into it.
Still Gotta Pay Up!
A common misconception is that filing an extension extends the time you have available to pay your taxes. This is NOT TRUE! It only extends the time you have to file your return. You may be wondering, “how am I supposed to know what to pay if I’m not filing yet?” Simply put, estimate!
First, you’ll need to file Form 4868. That’s your Application for Extension, and it needs to be in by Tax Day! With it comes your estimated payment. Predictably, the US Government is not very interested in partial payments, so do your best to overestimate your payment. Then, if you’ve overpaid, you’ll receive a refund for the difference. If you already expect a refund rather than a payment, you do not need to pay at this time.
Not Prepared to Pay?
If you’re truly not ready to pay in full, don’t fret! There’s a system for that as well. Form 1127, if also submitted by Tax Day, is the form to request more time to pay. You’ll have to prove that paying the tax would cause you “undue hardship,” which requires a good deal of financial documentation. This waives any late penalties, but does accrue interest as long as the debt is unpaid. Remember: at the end of the extension, your tax payment will be due in full!
Alternately, you could request a payment plan. This can be costly, but can be a much more permanent solution depending on your circumstances. There will be a “Failure to Pay” penalty, and a 4.5% late fee (PLUS interest) each month, maxing out at 22.5% at 5 months. However, you’ll be able to steadily work towards zeroing out your debt with no huge payments to worry about. Ultimately, you know what suits your situation best!
Preparation is Key
The most important part of tax filing is PREPARATION. In fact, we have two blog posts already about the advantages of filing your taxes early (you can find those here and here). While filing for an extension is an available option, I’m sure you can see how it’s not set up to be very friendly to the taxpayer. After all, Uncle Sam wants his money! Oblige him by ensuring filing everything on time and paying in full.
If this process is as overwhelming to you as it is to most American taxpayers, maybe consider if Bookkeeping or Tax Preparation services could benefit you! We all know it’s better to be safe than sorry, and that certainly applies to taxes.