April 12, 2023
As the Tax Day deadline rapidly approaches, some taxpayers may be unable to file their federal tax return by April 18th, 2023 and will need to file an extension. In this article, we'll go over what a tax extension is, how to file for one, and what you need to know about paying your taxes on time.
First off, let's talk about what a tax extension is. A tax extension gives you extra time to file your federal tax return, but it does not give you extra time to pay any taxes owed. That means if you file for an extension, you still need to pay your taxes by the April 18th deadline. If you don't, you may be subject to interest and penalties on the amount owed.
So, how do you file for a tax extension? The easiest way is to file Form 4868, which is the "Application for Automatic Extension of Time to File U.S. Individual Income Tax Return." You can file this form online or by mail, and it needs to be submitted by April 18th. Keep in mind that if you owe taxes, you'll still need to estimate the amount you owe and pay it by the April 18th deadline.
It's important to note that while a tax extension can give you more time to file your return, it doesn't give you more time to contribute to retirement accounts or make other tax-related decisions. So, if you're planning to make any last-minute contributions, be sure to do so before the April 18th deadline.
Now, let's talk about the consequences of not paying your taxes on time. The IRS charges interest and penalties on any unpaid taxes, and these charges can add up quickly. The interest rate is currently set at 3% per year, and the penalty for late payment is typically 0.5% of the unpaid taxes per month, up to a maximum of 25%.
To avoid these charges, it's important to pay your taxes by the April 18th deadline. If you can't pay the full amount owed, it's still better to pay as much as you can and then apply for a payment plan with the IRS for the rest. This can help minimize the interest and penalties you'll have to pay.
A common myth is that filing a tax return extension will increase your chances of being audited. According to the IRS, "Requesting an extension of time to file your return does not increase your chances of being selected for an audit."
If you have any questions or concerns about this process, please contact your Faw Casson advisor.