Is It Bad to File an Extension on Taxes?

A tax extension is a request to the Internal Revenue Service (IRS) for more time to submit your federal income tax return. It is not a request for more time to pay any taxes you may owe. Filing for an extension is a common procedure that grants you more time to gather necessary documents and complete your paperwork accurately, without the pressure of an imminent deadline.

What a Tax Extension Accomplishes

An extension provides an automatic six-month delay for filing your tax return, moving the typical April 15 deadline to October 15 for most individuals. This additional time helps ensure the accuracy of a complex return. For instance, investors or business owners may be waiting for corrected or delayed tax documents, such as a Schedule K-1 from a partnership or an amended Form 1099.

The need for an extension can also arise from personal or financial events occurring near the tax deadline. Events like a family emergency, a sudden illness, or the complexities of selling a business can make it difficult to file a thorough return by the original due date. An extension allows you to avoid rushing and making errors that could lead to future complications with the IRS.

The Requirement to Pay by the Deadline

A tax extension only postpones the filing deadline, not the payment deadline. You are still required to estimate your total tax liability for the year and pay that amount by the original April 15 due date. Failing to do so results in penalties and interest, even with an approved extension.

If you do not pay your estimated taxes by the deadline, the IRS will charge interest on the unpaid balance, and a failure-to-pay penalty will be assessed. This penalty is 0.5% of the unpaid taxes for each month the taxes remain unpaid, and it is capped at 25% of your unpaid liability. To avoid this penalty, you must pay at least 90% of your actual tax liability by the April deadline.

This should be differentiated from the failure-to-file penalty, which is more severe. The failure-to-file penalty is 5% of the unpaid taxes for each month that a return is late, also capped at 25%. By filing an extension, you avoid the failure-to-file penalty for the six-month extension period, making it a sound decision if you cannot file on time but can estimate and pay your liability.

Common Misconceptions About Filing an Extension

A common myth is that filing an extension increases your chances of being audited by the IRS. The agency is primarily concerned with the accuracy of your tax return, not the date it is filed. A rushed return with errors is more likely to draw scrutiny than a well-prepared, accurate return filed on October 15.

Filing an extension is not an indication of financial trouble or poor organization. Many taxpayers with complex financial situations, such as those with income from multiple sources or small businesses, file extensions to ensure they have all the necessary information for an accurate return. The process is a standard part of the tax system.

How to File for an Extension

The most common method to request an extension is to file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. This form can be submitted electronically using tax preparation software or through the IRS Free File system on the agency’s website. This is the fastest method and provides an immediate confirmation that your request has been received.

Another way to get an extension is by making an electronic payment to the IRS for your estimated tax liability. When using systems like IRS Direct Pay, you can indicate that the payment is for an extension, which automatically processes your request without a separate Form 4868. You can also complete and mail a physical copy of Form 4868, ensuring it is postmarked by the April 15 deadline.