This article was last updated on March 10
[Updated for 2016-17 Tax Season] – Even if you don’t have enough money to pay your entire tax bill when due this tax season you must take action. Inside your head, you scream, “I need more time!” But before you stress out realize that the IRS offers a 6-month tax filing deadline extension that is not that hard to get. So ask yourself, “Should I file a tax return or file a tax extension?”
It’s better to prepare and file a tax return or tax extension even if you can’t pay your entire tax bill. The penalties for doing nothing are far higher if you don’t file or request an extension to file. So, pay as much or as little as you can but do request an extension or file your tax return.
The Truth About Tax Extensions
Here is a common misconception: “A tax extension postpones my deadline to file and to pay. I will face no IRS penalties for late payment if I file an extension.”
The truth is this: A tax extension is only an extension of time to file. You do not get an extension of time to pay. If you do not pay at least 90% of your total tax debt by Tax Day, you will face interest and penalties–even if you get an extension.
But you should file a tax return or a tax extension on time–even if you cannot pay–in order to avoid the worst penalties. The IRS penalties for failure to file a tax return are much more expensive than the penalties for late payment.
What Penalties Could You Face?
It depends on your exact situation. One of the following four common scenarios may apply to you:
1. You requested & filed a tax extension and paid at least 90% of your tax bill by Tax Day: You will not be penalized for late payment. However, if you efile or file your tax return by the extension deadline, but do not pay the remainder of your bill by that deadline, you will probably pay a failure-to-pay penalty. This is 0.5% of your balance due for each month (or part of the month) you let your taxes go unpaid (maximum: 25%).
2. You requested & filed a tax extension and did not pay at least 90% of your tax bill by Tax Day: You may have to pay the failure-to-pay penalty. If you efile or file your tax return by the extension deadline, but did not pay your entire bill by that deadline, you will still collect that penalty until you pay it off.
3. You requested & filed a tax extension and paid at least 90% of your tax bill by Tax Day, but did not file or efile your tax return by that deadline: You may have to pay the failure-to-file penalty. This is 5% of your unpaid taxes each month you are late. This fee can go up to 25% of your unpaid taxes. If you file more than 60 days late, your minimum failure-to-file penalty will be 100% of your unpaid taxes, or $135.
4. You requested & filed a tax extension and did not pay at least 90% of your tax bill by Tax Day, and you did not efile or file your tax return nor pay your taxes: You may have to pay both penalties. The failure-to-pay penalty will be subtracted from the failure-to-file penalty, unless you file your return more than 60 days late.
So What Should You Do?
If you have enough time prepare and efile a tax return by the normal tax season due date (April 18th, this year) , then you should do that. You can file a tax amendment if you need to make any changes to the tax return you have filed, such as filing status, credits, deductions, or income. You can even file a tax extension online now. And the IRS has this advice: don’t panic. Taxpayers who need more time to complete their tax return can request an automatic six-month extension.
However, if it is a few days before the deadline and you do not have all of your tax documents in order, you should consider filing an extension by April 15. If you cannot afford to pay your entire tax bill by that time, you should pay what you can afford when you file a tax return or an extension, because the penalties are based on the total amount due. Even if you missed the deadline to file an extension, you should go ahead and file your tax return now to avoid further penalties and interest, because they will keep adding up monthly.
How to file a tax extension
The IRS says it received requests for 11 million extensions, which amounts to about 8% of all tax returns. Taxpayers who ask for an extension get an extra six months to file—your new deadline will be Oct. 18. You can get some extra time without any hassle. Simply e-file for a Personal Tax Extension of your federal tax return using TurboTax Easy Extension. You can also file for an extension on the IRS website.
Important things to remember when you request an extension
First, a federal extension does not automatically extend the deadline for your state income tax return. Also, an extension to file your federal taxes does not give you an extension to pay your actual tax bill. You still have to figure out your taxes and make an estimated payment. Estimating how much money you’re going to owe can take time, so please do not wait till the last minute until to get started. Last year’s tax return could be a good starting point if you haven’t experienced any major life changes. If that is the case, you can probably pay the same amount in taxes for the current year that you paid in the past year.
For reference, here are the current tax season key filing deadlines, including extension dates.
2016-2017 Tax Season Filing Key Dates and Deadlines
Tax Related Activity
|January 1, 2017||First day to file a 2016 tax return, though the IRS generally will not accept e-file and free file returns until the date below. Even paper based filings won't be processed till later in the month|
|January 23, 2017||IRS E-file to go live, allowing submission of electronic tax returns for the vast majority of tax filers. Paper tax returns will begin processing from this date as well|
|January 31, 2017||Date by which you should have received a W-2 from employers you worked for during the tax year. If not, contact their HR/Payroll department to resend tax documents|
|February 1, 2017||Deadline for 1099 statements (factors in your AGI income) that report non-employee compensation, bank interest, dividends and distributions from a retirement plan. This date is also the deadline for self-employed individuals to file and pay in full their fourth-quarter estimated tax payment|
|February 16, 2017||Financial institutions (e.g Vanguard, Fidelity) must mail out 1099-B, 1099-S and 1099-MISC forms by this date. See what these forms are and if you will need one for your return|
|March 15, 2017||S Corporation and Partnership tax returns due|
|April 18, 2017||*Tax Day* Last day for filing federal income tax returns and extension requests. Since April 15th is a Saturday and Monday is the Emancipation Day holiday the due date has been shifted out to Tuesday, April 18th.|
|April 18, 2017||Deadline for filing state income tax returns (for most states) and extension requests. Last day to make a contribution to a Traditional or Roth IRA, Health Savings Account (HSA), SEP-IRA or 401(k)|
|April 18, 2017||FBAR (Foreign Bank Account Report) forms due for taxpayers who have signature authority over $10,000 in total in foreign bank accounts in the prior year. Laws enacted last year change the standard FBAR due date to "tax day" (vs June 30th as in years past). No extensions are allowed and forms must be filed electronically.|
|June 15, 2017||U.S. citizens or resident aliens living abroad must file tax returns and pay any taxes due by this date (or file for a four-month extension)|
|October 15, 2017||Filing approved extended federal, state and S-Corp/Partnership income tax returns Note: you still need to file for an extension request by April 17th|
|April 15, 2020||Filing a 2016 tax amendment. You can file an amended or previous year return anytime, but you have a deadline of 3 years from the original due date to claim any tax refund.|