If I understand: “If you don’t pay your income taxes by April 17, the IRS will most likely assess a late payment penalty and interest charges which accumulate each month that your taxes go unpaid.”.
This seems to mean that you get the same late fee whether you have an extension or not.
But if this is the case, why bother getting an extension.
Just to,make things easier for the IRS?
Yeah. Right.
People get an extension for FILING, not paying. They make a guess and pay that and then file later. If you guess was high enough no penalty. And since most? folks get a refund (because taxes have been deducted from their paychecks) they don’t actually pay.
Lets say you owe $5. If you don’t file at all you have to pay $5 plus penalties. If you file an extension and guess $4 You still own the $1, but the penalties MAY be less (I am not sure)
Even if you are due a refund you MAY have to file, and if you don’t your refund can be reduced (I think)
Someone will respond with a better answer, but I think that is the general idea
Brian
In addition to what N9IWP said, late payment fees, interest etc on what’s due is one thing. There’s also a late filing penalty. Filing for an extension mitigates that fee. Even if you’re not going to pay your taxes (at all? on time?) for whatever reason, at least file them so you don’t get hit with that charge as well. What you owe will be the same, but at least they’re in on time.
Sometimes one’s taxes are complicated, or life is complicated, or both.
We brought the Firebug home from Russia in mid-March of 2009. Outside of work, our year up to that point had been focused on getting to that point, including three trips to Russia, and a shitload of adoption-related paperwork. And once we brought him home, we were suddenly parents to an 18 month old boy, with no previous experience at being parents.
We had our hands full, to say the least. We were too busy to pull our taxes together. Being able to file an extension was a godsend.
IIRC, the IRS allows a 10% leeway on getting the payment right, with respect to penalties, and with withholding, we could take it for granted that we were easily within that margin.
The following year, we had the adoption tax credit, child care credits, and various other new wrinkles that we needed to pull together the documentation for. (Everything’s easy once you have all the documentation together; assembling all the paperwork is the hard part.) You find you’re still looking for stuff you know you have somewhere as April 15 approaches. Yep, time to file for another extension.
I do my MIL’s taxes and she has a foreign bank account. We could not get the statements in time to file by April 15 so I filed an extension.
If you request an extension it is automatically granted.
As said above, an extension is *not *permission to pay your taxes late. It is permission to file your tax return late.
Yes, get an extension to get the returns filed correctly. Do your best to pay your taxes when they are due. If the tax payments are late you’ll be subject to interest on the amount due whether you file an extension or not, but you won’t be subject to fines for failing to file or filing late if you file an extension.
There are basically three penalty-like charges when you don’t file or pay on time:
Failure to file (FTF) penalty. This is 5% of the the unpaid tax shown on your return per month or fraction of a month until the return is filed. Maximum 25%. Note that this penalty does not stop accruing until you file your return. Making a late payment of the amount due does not reduce the penalty.
Failure to Pay (FTP) penalty. This is 0.5% of the tax due per month or fraction of a month until the tax is paid.
Interest. Interest accrues on a daily basis on the unpaid balance, including the unpaid penalties. The current annualized rate is 4%, but this can change quarterly.
If you have an extension, the FTF penalty doesn’t start until the extended due date.
If you have an extension, the FTP penalty does not start until the extended due date as long as you have paid at least 90% of your tax due by the regular due date. Otherwise, it starts on the regular due date.
Interest always accrues on payments not made by the regular due date until the balance is paid.
In any month where both the FTF and the FTP penalty apply, the FTF penalty is reduced so that the total is not more than 5%.
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But wait, there’s more than just penalties and interest. There are certain elections that can only be made on a timely filed return. If you miss the due date and don’t have an extension, you are simply out of luck.
A common one is the right to recharacterize an IRA contribution or to receive a return of an excess contribution without penalty. The deadline is the tax return due date including extensions. For this purpose you are considered to have a 6-month extension if you file on time.
You’d be surprised how many people screw up their IRA contributions and need to fix them. Many of them don’t figure out what they did wrong until after April 15th. But because somebody on the internet told them “You don’t have to file on time if you have a refund coming,” they lose their opportunity to fix it.
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And one more thing that all of the tax brains on the internet don’t tell you: Willful Failure to File a return when due is a criminal matter. 26 USC 7203.
You could be fined and/or sent to jail for willfully not filing your return on the due date. Now, the IRS does not routinely refer these cases for prosecution. In fact, they rarely do. Only when they need to make an example of you or when there are extreme circumstances do they do this. For example, if you charge people to teach them that there is no law making you pay income taxes or you are a drug king pin or something like that.
So you see, there are plenty of reasons to get an extension if you need one.
Ignore the people on the internet who tell you there is no problem if you file late or don’t file at all.
Most years the taxes for one of the S corporations of which I’m a partner aren’t complete by April 15. Without those completed with the associated schedule K forms I’m unable to complete my own taxes. Thus most years I need to file an extension.
Fun fact: if you fail to file for two years in a row, and you deserved and are still owed a $500 refund the first year and you owed $400 for the second year, you still get charged both penalties for failing to file the second year even though you’re a net lender to the IRS.
Don’t ask me how I know this.
There is no penalty for failing to file (or filing late) if you are owed a refund, but as you say, that doesn’t absolve you of later sins. The IRS taketh and the IRS taketh away.
My son was incarcerated late one year. We knew he’d be out mid summer the next so we did an extension for him so he could get together his own taxes.