Of course, there are a number of reasons you might need more time, even though the tax deadline falls around the same day every year — April 15. The due date might move a little forward if April 15 falls on a weekend, but you know for the most part that your tax return is due around that day.
The good thing is you don’t have to make up any excuses or justify why you will miss the tax deadline.
“You don’t have to explain why you’re asking for the extension,” the IRS informs filers in the instructions for Form 4868. “We’ll contact you only if your request is denied.”
Nearly one in 10 taxpayers file for an extension, and most of them now do it online, said Eric Smith, a spokesman for the IRS. “We are projecting over 14.6 million extension requests this year,” he said.
So, what’s the No. 1 reason many people want an extension?
“They are not prepared to pay,” said Deenice Galloway, a tax professional based in Maryland.
But then they get a shock.
“No, the extension doesn’t give you more time to pay,” Galloway says she has to tell people. “It doesn’t stop the interest or the penalty.“
Although the IRS gives you more time to file your return, you are still required to pay all taxes you owe by April 15.
Galloway said that, in her practice, about 95 percent of taxpayers who end up needing to file for an extension are unaware that it doesn’t come with a postponement of their payment.
“I recommend people make a payment with their extension and ask for a payment plan,” Galloway said.
Here’s the part of getting an extension that can seem perplexing. Because the extension doesn’t give you more time to pay, you have to estimate your tax liability. But how do you know how much to pay if you haven’t finished your tax return?
“Actually, by looking at prior-year returns, you can estimate how much you may owe,” Galloway said. “Even if you don’t have all your tax documents, you can get a rough estimate by looking at your salary and expenses from the previous year. Generally, if you owe one year, you owe the next.”
It may sound counterintuitive or even scary, but even if you can’t pay, file your return on time or ask for an extension.
“If your return is done, there’s no reason to wait, even if you can’t pay,” Smith said. “Tax returns are not like wine. They don’t get better with age.”
By filing a complete and accurate return by April 15, or sending an extension request, you stop the late-filing penalty.
“That’s 5 percent per month, and it builds up fast,” Smith said. “It’s also 10 times the late-payment penalty, which is, by comparison, just one-half of one percent per month.”
If you can’t pay your total debt, pay as much as you can, because it can help you qualify for “reasonable-cause relief” from the late-payment penalty, Smith points out.
To qualify, you need to make sure you’ve paid at least 90 percent of what ends up as your total tax liability by the April deadline. That 90 percent consists of withholding, estimated tax payments and any amount you send with the extension.
Here’s an example of how the relief works, Smith said. Let’s say you asked for an extension and you filed your return by the extended Oct. 15 deadline. Your total tax liability is $10,000. Through paycheck withholding, you paid $7,000. You sent $2,000 with your extension request on April 15.
In all, you paid $9,000, which turns out to be 90 percent of what you owed. If you send the IRS the remaining $1,000 due with your return by Oct. 15, you won’t be charged the late-payment penalty, Smith said.
However, you’ll still owe interest, currently figured at the rate of 6 percent per year, compounded daily, but you’ll be excused from the one-half of one percent late-payment penalty, he said.
The tax code promotes procrastination because, despite a recent major overhaul, it’s still complicated and confusing. So, if you need more time for whatever reason, take it. Just be sure to file for an extension, and keep in mind Uncle Sam still wants his money by April 15.