Last Minute Tax Return Filing and Getting an Extension

It is April 1, which means only two weeks remain until federal income tax returns are due on April 15.  If you have already filed your tax return, congratulations on getting your return filed on time rather than waiting until the last minute.  But for those of you who have not yet filed your tax return, there are some important tips to remember.

The final two weeks before income tax returns are due is a very busy time for tax preparers.  If you have not already gathered your W-2s and other tax documentation and provided it to a tax preparer, it may be difficult at this point to find one who is both reputable and has the bandwidth to take on another return.

But remember that even if you cannot get your tax return completed by April 15, you can file an extension.  Whether you are expecting to owe taxes or receive a refund, you can file a six-month extension, giving you until October 15 to file your tax return.

An extension provides benefits to you in a couple of ways.  First, it gives you time to get organized if you have not already.  If today is the first day you have considered gathering your tax documentation, scrambling to do so at the last minute may make it more likely you will make a mistake.  This could result in you missing deductions you are due or in underpaying the tax you owe, which could mean tax penalties from the IRS down the road.

Second, filing an extension can reduce the money you might otherwise have to pay the IRS in fines and penalties.  Should you choose to file an extension, remember that an extension just gives you more time to file your return, not more time to pay any taxes due.  If you are receiving a refund, this is not a concern to you (as the IRS has no problem with waiting longer to pay you the money they owe to you).  However, if you expect to owe taxes, you need to calculate an estimate of your taxes due and pay that amount at the time you file your extension.

Even if you cannot afford to pay an estimate of your tax owed, you should still file an extension rather than do nothing.  The penalty the IRS charges someone for failing to file a tax return is much higher—literally 10 times the amount—than the amount the IRS charges for filing an extension but failing to pay tax due.

For example, if you owe $1,000 in taxes and file an extension without paying, you will be assessed a failure-to-pay penalty of .5 percent per month.  This is only $5 per month, which is not a bad amount to pay for effectively getting a loan from the IRS.

But if you owe $1,000 in taxes and do not file an extension or pay, you will be assessed a failure-to-pay penalty of 5 percent per month.  This amounts to $50 per month, which can start to add up much more quickly.