With the end of the tax season coming on Tuesday April 18th, 2017(normally it is April 15th) a recurring theme has been “I’ll just put it on extension”, but what does this really mean?
Filing an extension, which is commonly done with IRS Form 4868 – Application For Automatic Extension of Time To File US Individual Income Tax Return, is only a 6 month extension on filing and will only prevent “late filing” penalties until the extension date, normally, October 15th.
What this does NOT do is prevent “late payment” penalties from accruing. The good news is late filing penalties accrue at a rate 10x what late payment penalties accrue(5% for each month or part of a month for late filing vs. 0.5% for each month or part of a month for late payment) so by filing an extension you are saving yourself from substantial penalties. In both cases the max amount is 25% of the unpaid balance.
Finally, here’s a great article from the IRS website which explains late filing and late payment fees. In fact, if you do a direct debit from your account you can pay online for free through IRS Direct Pay, however, if you need to use a credit card there are services such as Drake PayTax which charges a 1.85% fee for credit card transactions and a flat fee of $2.85 for debit card transactions. Please note both services are only for FEDERAL and do not cover any state balances owed.
If you have any questions or would like to speak with one of our income tax professionals, please call us at 623-240-9545 or shoot us an email through our contact form.