8 Credit Card Offers That Could Backfire Later
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You might need more time to pay your taxes, but make no mistake: Even an extension probably won’t protect you from paying more.
Tax Day is approaching and you realize don’t have your paperwork together. You have no idea whether you owe money or not, and you’re not sure you can afford to pay if you do. Fortunately, there may be an easy way out to buy yourself more time: a tax extension. But what is a tax extension and will it really benefit you if you end up owing money to the IRS?
In most cases, a tax extension refers only to more time for filing. It doesn’t prevent the penalties for paying late, generally half a percent for each month you don’t pay. The smartest thing to do is to file even if you can’t pay right now and pay as quickly as you can.
There aren’t many situations where the IRS will cut you slack, but it does happen. For example, let’s say you pay at least 90 percent of your tax bill by Tax Day and then request an extension. In this case, you won’t owe late penalties as long as you pay the rest of the bill by the extended filing deadline.
There’s also something called a temporary extension to pay, which isn’t as great as it sounds. It doesn’t get you off the hook for interest and penalties. Instead of filing the usual Form 4868, you set up an online payment agreement with the IRS.
The “temporary extension” is really only to avoid a fee to set up your repayment plan and process payments. If you can pay the bill within four months, you won’t pay the fee. If it takes longer — you can set an agreement for up to six years — there is a one-time fee of $52 for direct debit payments or $120 for other payment methods.
There’s one last way to receive an extension without paying penalties, but it’s the hardest one to get: You have to convince the IRS you qualify for tax penalty abatement because of unusual circumstances.
This is handled on a case-by-case basis, and excuses like “I didn’t know” or “I forgot” aren’t likely to work. Verifiable situations such as natural disasters, hospitalization or serious illness, or death in the family might if you have an otherwise clean tax record.
A tax extension might not be the break you were hoping for, but if you still need one, file Form 4868 online or on paper. You also automatically get an extension if you make a tax payment.
You don’t need to file an extension if you are out of the country when your return is due. In this case, you automatically get an extra two months but can get an additional four months by filing. And if you’re in military service and on duty outside the U.S., you’re considered “out of the country” even if you’re within America’s borders on Tax Day.
Article last modified on September 3, 2019. Published by Debt.com, LLC