While there are plenty of reasons to need an extension, it does NOT mean you get extra time to pay taxes owed. You are among the many businesses and individuals that file an extension.
But…what does that really mean? It means you better pay an estimate based on what you think you’ll owe in order to avoid any penalties when you actually file your return.
Here are three other things to know when you file an extension.
File an Extension
Even if you can’t pay what you owe, file an extension! This saves you from a potential failure-to-file penalty.
Personal return extensions are due 6 months from the original date or October 15. Business (1120S S-Corporation and 1065 partnership) returns which were originally due March 15 get extended until September 15.
Use Form 4868
Taxpayers request an extension using the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return of Form 4868. The deadline for mailing the form to the IRS is April 18, but it can also be e-filed. Talk to your tax professional about this.
Electronic Payment Options
The IRS automatically processes an extension of time to file when you pay all or part of any taxes owed electronically by April 15. This means you don’t need to file a paper or electronic Form 4868 when making a payment with IRS Direct Pay, the Electronic Federal Tax Payment System or with a debit or credit card.
When paying one of these ways, select Form 4868 as the payment type. Remember to print out a confirmation as proof of payment and keep it for your records.
Remember, more time to file does not mean more time to pay!
Requesting an extension to file does exactly that. It ONLY gives you more time to file your return NOT more time to pay taxes owed. You’ll need to estimate and pay any owed taxes by April 15 to avoid any late-filing penalty and interest. Again, to avoid penalties and interest, you need to pay the full amount of taxes owed by the April due date.
If you file your return and it is determined that you paid too much, you will get a refund. I always suggest paying a little more than you’ll think you owe and taking the refund vs. paying penalties and interest on top of taxes due.
What if you can’t afford your taxes owed?
While it is recommended that all taxpayers file their taxes on time, even if you can’t pay what you owe, you do have options. While taxes are due by the original due date of the return, some taxpayers are unable to pay them by that deadline.
Pay as Much as Possible
You can pay online, by phone, by check or money order, with your mobile device using the IRS2Go app or through direct withdrawal from your account when you file for the extension with your tax expert.
Get a Loan or Use a Credit Card to Pay the Tax
While this sounds like a crazy idea, the interest and fees charged by a bank or credit card company may actually be less than IRS interest and penalties.
Use the Online Payment Agreement tool
Don’t wait to hear from the IRS. If you know you can’t pay, then start with the payment plan option. should not wait for the IRS to send a bill before setting up a payment plan. The best way to do this is to use the IRS online payment tool.
You can also file Form 9465, Installment Agreement Request, with your return and set up a direct debit agreement, eliminating the need to send a check each month. Learn more about paying tax liability here.
Don’t Ignore a Tax Bill
Whatever you do, don’t ignore a tax bill or an intent to levy notice. The IRS takes collection action against anyone who doesn’t respond to notices.
Instead, contact the IRS right away by calling the phone number on any notice or bill to talk about your options. See below to learn about dealing with economic hardship.
Remember, there’s no shame in admitting you cannot afford your tax bill. Plus, you’re in luck because the IRS does offer payment options.
In most cases, you can apply for an installment agreement with the online payment agreement application. It’s pretty simple to complete yourself or you can have your tax professional guide you through the process.
If the IRS sees you make an effort to pay your taxes owed, then they most likely will agree to it.
What if the IRS puts a levy on my account?
If you’re struggling with financial hardship, you can make your plea to the IRS. They are usually willing to work with you if you can’t make payments because of financial hardship.
You should receive a letter in the mail letting you know about any levy placed on your bank accounts or wages. You are given time to respond to that letter. This is your first step to getting help. Whatever you do, don’t simply ignore the letter. A tax expert can help guide you through correspondence or act on your behalf if you file a power of attorney.
Should the levy on your wages create an immediate economic hardship, the levy must be released. If the levy on your bank account is creating an immediate economic hardship, the levy may be released.
The IRS is not allowed to create hardship which makes it so you can’t feed your family. Economic hardship officially occurs when it is determined that the levy prevents you from meeting basic, reasonable living expenses.
If you feel you are suffering from hardship, you must be prepared to provide financial information to the IRS to prove said hardship.
This means you’ll need to prove rent or mortgage payments. It is important to have the proper documentation ready when calling the IRS or responding via a written request. You need to prove your hardship is real. I know this sounds crazy, but they won’t take your word for it. You need that paper trail.
If you still have questions about filing an extension, ask them! I’m here to help.