Many people believe that a tax extension is somewhat of a cure-all. Don’t have the money to pay taxes? File an extension. Still trying to get everything in order? File an extension. However, the tax extension isn’t exactly what it sounds like, and it doesn’t really “cure-all”. Here are 5 important facts about filing a tax extension that you need to know before you file.
1. An Extension Isn’t an Extension to Pay
The word “extension” is somewhat misleading. When you file a tax extension, you’ll get six extra months to file your taxes. Sounds reasonable, but keep reading. The keywords here are “extra months to file your taxes”. A tax extension doesn’t extend the deadline to pay any taxes that you may owe to the IRS. Sound backwards? Not what you expected? Welcome to enlightenment my friend. If you file an extension, you will still have to pay any taxes due by the normal tax deadline. So before you file an extension assuming you’ve got 6 extra months to pay your taxes, think again.
2. The Penalty is in the Eye of the Filer
In sports, penalties are up to the discretion of the referee. When it comes to tax time, the IRS wears the zebra stripes. Although technically you’re not penalized or charged a fee for submitting the tax extension paperwork – Form 4868 – there could still be a downside to filing an extension.
If you file an extension, but you’ve got a good grasp on your situation and you are pretty sure a tax refund is in your future this year, then you really have nothing to worry about. The government will hold onto your refund until you get your paperwork sorted out during your extension period. Once you file, you’ll get your tax refund.
But the rules change a bit if you end up owing taxes to the IRS. If you file an extension but you choose not to pay what you owe by the tax deadline, the IRS will charge you a failure-to-pay penalty and interest on the taxes that you owe them.
3. You Can Request An Extension Using TurboTax
Many people still believe that the only way to file for an extension is the old-school paper method. However, you can request an extension using TurboTax Easy Extension for free. Just make sure you go online and file an extension by the tax deadline. You will also receive an email confirmation when your tax extension is accepted.
4. Your Reasons Usually Don’t Outweigh the Benefits
Unless there are certain pieces of paperwork you’re waiting to arrive in the mail, an extension probably won’t deliver the benefits you might expect. If you’ve procrastinated during tax season, the solution isn’t an extension. You could end up costing yourself more money and more frustration by asking for more time. The best piece of advice is to buckle down, gather your documents, go online and file.
5. No Extension for IRA Contributions
Lastly, if you think you’ve found an IRA-contribution loophole in the tax process, think again. An extension to file does not extend the time you can make an IRA contribution and get a tax deduction for your contribution on your 2016 taxes. The deadline to make an IRA contribution for 2016 is this Tuesday’s tax deadline.
Still need to file? You still have time and TurboTax makes it easy. TurboTax ask simple questions and gives you the tax deductions and credits you are eligible for based on your answers. Also, if you have a question you can connect live via one-way video to a credentialed CPA or enrolled agent to get your toughest tax questions answered. So if you are doing your taxes in your pajamas, it’s okay!