Thursday, February 5, 2015

Did You Know Filing A Tax Extension Could Save You Money? - writes:  No one likes doing taxes. It’s a simple fact. Each year we stress about getting all the necessary documents in by the deadline and finding time to actually file accurately by April 15th. Many people aren’t aware that you can request an IRS tax extension for any reason, and you are almost always approved. While an IRS-approved tax extension provides you six extra months to file, it does not allow extra time to pay any tax balance due. This doesn’t mean, however, that filing a tax extension won’t save you money.
If you are late filing taxes and owe the IRS money you will be charged two penalties. One is called the late filing penalty and the other is the late payment penalty.
IRS Late Filing Penalty
Known as the “failure to file penalty”, it is a fee if you owe tax and you don’t file your tax return (or a tax extension) on time.
Fee: 5% per month for the tax balance due. ($50 per month on every $1,000 you owe)
Tax Extension Advantage: Once approved for a tax extension this penalty fee is eliminated until your extended tax deadline (six months).
IRS late Payment Penalty
Penalty assessed if you don’t pay all the amounts you owe in time. You owe this penalty even if you filed a tax return or tax extension on time.
Fee: The good news is that it’s only a 4-6% penalty per year which works out to about $4 per month on every $1,000 you owe.
This is much cheaper than credit card interest. Never put your tax balance on a credit card. You are much better off paying lower interest to the IRS.
So remember, you can avoid the BIG late filing penalty by getting a tax extension, and don’t sweat about the late payment penalty. It’s just a small interest payment.