Tax Day is upon us. If you haven’t pulled your documents together or made real progress on your tax return yet, filing for an extension by April 15 sounds like a pretty good idea. That’s what about 12 million people do each year, according to the IRS.
Getting more time isn't as simple as it sounds. Here are seven things you should know if you can't make the deadline.
1. You still have to act by April 15. Anyone can file for an automatic extension, but the paperwork is still due on April 15. Filling out Form 4868 will give you another six months to finish, though you can file your taxes any time before October 15. You can file for an extension for free through IRS Free File. Check with your state to see if you need to file a separate application for an extension.
2. If you owe money, you have to pay up. Just because you’re getting an extension, you don't get more time to pay your taxes. You’ll need to fill out enough of your tax return to come up with a rough estimate of what you owe. Use a tax estimator like the one the IRS provides. Fail to pay, and you’ll be hit with a penalty of 0.5% to 1% of what you owe for each month or part of a month your bill is outstanding.
3. Failing to file is worse than failing to pay. If you simply ignore tax day and don't file or apply for an extension—and you owe taxes—you’ll be hit with a failure-to-file penalty, which is usually 5% of the unpaid taxes for each month or part of a month your return is late, up to 25% of your bill.
4. Your bank may be kinder than Uncle Sam. You may want to pay your taxes with a credit card if you don’t have the cash on hand. The interest and fees you'll pay with plastic (roughly 2% of your tax bill) may be less than the interest and penalties you'd face on a late tax payment.
5. You may not need an extension. If you're asking for an extension just because can't come up with the money (not because you don’t have your paperwork in order), you're better of filing your return and paying what you can. You can request a short extension of 60 to 120 days to pay. You will still pay penalties and interest, but at a lower rate.
The IRS also offers installment agreements when you can't pay your taxes on time. You'll have to pay a fee to set up the plan—use Form 9465-FS—and you’ll be billed monthly. The IRS must approve the plan, and you can’t stretch out the payments for more than three years.
6. If you are owed a refund, you won’t be penalized for not filing. Of course, you won’t get your refund until you file your return. So why let Uncle Sam hold on to your money any longer than necessary?
7. If you’re a chronic procrastinator, the IRS won't issue your refund. If you don’t do your taxes three years running, even if you’re owed a refund, the IRS will keep your money.