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What is a tax filing extension?
If you can’t file in time for your tax deadline, you likely qualify for a tax extension.
Tax extensions are a tool the IRS makes available to taxpayers who need more time to file their tax returns accurately. An approved extension application grants you an extra six months to get your taxes filed without accruing late filing penalties.
Filing for an extension is simple. If you have your information ready, an online extension application takes anywhere from 5-30 minutes depending on your filing type.
Is filing a tax extension bad?
Tax extensions are a very commonly used tool. In 2022, the IRS received around 19 million requests for extensions.
The IRS ultimately wants taxpayers to report accurate information. Tax extensions give businesses and individuals the necessary time to get everything in order and file correctly.
In some cases, business owners don’t get required forms in time to complete their personal tax return correctly. For example, S corporation members receive their Schedule K-1 forms after the business has filed their Form 1120S tax return.
Does filing for an extension increase the chances of an audit?
It’s a common misconception that an extension increases your chance of getting audited. This isn’t true. An extension doesn’t affect the likelihood of getting audited and the extra time spent ensuring your information is correct decreases the chance of an IRS audit.
Rushing through an extension and making a mistake is much more likely to trigger an audit. Giving yourself the extra six months does more to protect you than put you at risk.
An extension for filing vs. paying
Filing for an extension extends the deadline for filing, but not for paying.
The IRS has two separate penalties for tax returns that accumulate monthly based on the owed amount: a late filing penalty of 5 per cent per month and a late payment penalty of 0.5% per month. The maximum penalty amount is 25 per cent of the amount owing.
The late payment penalty can be avoided by paying an estimated amount. If you make quarterly estimated payments, you’re already in the clear so long as you’re up-to-date.
If you don’t make quarterly estimated tax payments throughout the year, you must pay what you expect your owed amount to be and file for an extension before the April 15th deadline. Once you file your tax return, you’ll either pay the difference or get a refund if you overpaid.
Filing for an extension is a no-brainer if you’re worried about filing late. You’ll avoid a penalty of up to 25 per cent of the amount owing and buy some extra time to get your tax return in order.
